UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

               |X| Annual Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

                  For the fiscal year ended DECEMBER 31, 1998

                                      OR

             |_| Transition Report pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

           For the transition period from ____________ to ____________

<TABLE>
<CAPTION>
Commission       Exact name of registrant as specified in its charter     State of                I.R.S. Employer
File Number      and principal office address and telephone number        Incorporation           ID. Number
<S>              <C>                                                      <C>                     <C>
1-14514           Consolidated Edison, Inc.                                New York                13-3965100
                 4 Irving Place, New York, New York 10003
                 (212) 460-4600

 1-1217          Consolidated Edison Company
                             of New York, Inc.                            New York                13-5009340
                 4 Irving Place, New York, New York 10003
                 (212) 460-4600
</TABLE>

<TABLE>
<CAPTION>
Securities Registered Pursuant to Section 12(b) of the Act:
                                                                          Name of each exchange
Title of each class                                                       on which registered
<S>                                                                       <C>
Consolidated Edison, Inc.
Common Shares ($ .10 par value)                                           New York Stock Exchange

Consolidated Edison Company of New York, Inc.
7 3/4% Quarterly Income Capital Securities (Series A                      New York Stock Exchange
   Subordinated Deferrable Interest Debentures)
$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
</TABLE>

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)

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


<PAGE>
 
                                      -2-


      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. |X| 

      The aggregate market value of the voting stock of Consolidated Edison,
Inc. ("CEI") held by non-affiliates of CEI , as of January 31, 1999, was $ 11.6
billion. Not reflected in this amount are the 48,502 CEI Common Shares ($.10 par
value) held by CEI's Directors who are the only stockholders of CEI, known to
CEI, who might be deemed "affiliates" of CEI. As of February 28, 1999, CEI had
outstanding 230,364,594 Common Shares ($.10 par value).

      The aggregate market value of the voting stock of Consolidated Edison
Company of New York, Inc. ("Con Edison") held by non-affiliates of Con Edison,
as of January 31, 1999, was $161.6 million. Not reflected in this amount are the
issued and outstanding shares of Con Edison Common Stock ($2.50 par value), all
of which are held by CEI.

                       Documents Incorporated By Reference

      Portions of CEI's and Con Edison's definitive joint proxy statement for
their 1999 Annual Meetings of Stockholders, to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after December 31, 1998, are
incorporated in Part III of this report.


<PAGE>
 
                                      -3-


                                TABLE OF CONTENTS

                                                                            Page

FILING FORMAT                                                               4   
                                                                                
FORWARD-LOOKING STATEMENTS                                                  4   
                                                                                
PART I                                                                          
                                                                                
ITEM 1.    Business                                                         4   
ITEM 2.    Properties                                                       16  
ITEM 3.    Legal Proceedings                                                18  
ITEM 4.    Submission of Matters to a Vote of Security Holders              None
                                                                                
Executive Officers of the Registrant                                        24  
                                                                                
PART II                                                                         
                                                                                
ITEM 5.    Market for the Registrant's Common Equity                            
              and Related Stockholder Matters                               28  
ITEM 6.    Selected Financial Data                                          28  
ITEM 7.    Management's Discussion and Analysis of                              
              Financial Condition and Results of Operations                 29  
ITEM 7A.   Quantitative and Qualitative Disclosure About Market Risk        37 
ITEM 8.    Financial Statements and Supplementary Data                      37  
ITEM 9.    Changes in and Disagreements with Accountants                        
                on Accounting and Financial Disclosure                      None
                                                                                
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                   *   
                                                                                
PART IV                                                                         
                                                                                
ITEM 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K  65  
                                                                                
SIGNATURES                                                                  74  
                                                                                
----------
*     Incorporated by reference from CEI's and Con Edison's definitive joint
      proxy statement for their Annual Meetings of Stockholders to be held on
      May 17, 1999.


<PAGE>
 
                                      -4-


FILING FORMAT

      This Annual Report on Form 10-K is a combined report being filed
separately by two different registrants: Consolidated Edison, Inc. ("CEI") and
Consolidated Edison Company of New York, Inc. ("Con Edison"). See "Corporate
Structure" in Item 1. References in this report to the "Company" are to CEI and
Con Edison, collectively. Con Edison makes no representation as to the
information contained in this report relating to CEI and the subsidiaries of CEI
other than Con Edison.

FORWARD-LOOKING STATEMENTS

      This report includes forward-looking statements, which are statements of
future expectations and not facts. Words such as "expects," "anticipates,"
"plans" and similar expressions identify forward-looking statements. Actual
results or developments might differ materially from those included in the
forward-looking statements because of factors such as those discussed in
"Liquidity and Capital Resources - Forward-Looking Statements" in Item 7.

PART I

ITEM 1. BUSINESS

Contents of Item 1                                                          Page

CORPORATE STRUCTURE                                                            4
OPERATING SEGMENTS                                                             5
ELECTRIC OPERATIONS                                                            5
GAS OPERATIONS                                                                 7
STEAM OPERATIONS                                                               8
COMPETITION                                                                    9
NON-UTILITY SUBSIDIARIES                                                       9
CAPITAL REQUIREMENTS AND FINANCING                                             9
FUEL SUPPLY                                                                   10
REGULATION AND RATES                                                          11
ENVIRONMENTAL MATTERS AND RELATED LEGAL PROCEEDINGS                           12
GENERAL                                                                       13
EMPLOYEES                                                                     13
RESEARCH AND DEVELOPMENT                                                      13
OPERATING STATISTICS                                                          14

CORPORATE STRUCTURE

      CEI, incorporated in New York State in 1997, became the holding company
for Con Edison on January 1, 1998. CEI has no employees and no significant
business operations other than through Con Edison and CEI's other subsidiaries.
See "Non-Utility Subsidiaries," below. CEI has agreed to purchase Orange and
Rockland Utilities, Inc. ("O&R"). See "Liquidity and Capital Resources -
Acquisition" in Item 7.

      Con Edison, incorporated in New York State in 1884, 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 part of Manhattan. The New York
Power Authority ("NYPA") supplies electricity to state and municipal customers
within Con Edison's service area through Con Edison's facilities. For
information about significant changes to Con Edison's operations resulting from
Federal and state initiatives promoting the development of competition, see
"Electric Operations - Changes" and "Gas Operations - Gas Sales," below.


<PAGE>
 
                                      -5-


OPERATING SEGMENTS

      For 1998, substantially all of CEI's operating revenues, operating income,
net income and total assets were those of Con Edison. In 1998, Con Edison's
electric, gas and steam operating revenues were 81.7 percent, 13.7 percent and
4.6 percent, respectively, of Con Edison's operating revenues. For information
about CEI's other subsidiaries, see "Non-Utility Subsidiaries," below. For
information on CEI's operating revenues, expenses and income for the years ended
December 31, 1998, 1997 and 1996, and assets at those dates, relating to CEI's
electric, gas and steam operations, see Note J to the financial statements in
Item 8. For information about significant changes to Con Edison's operations
resulting from Federal and state initiatives promoting the development of
competition, see "Electric Operations - Changes" and "Gas Operations - Gas
Sales," below.

ELECTRIC OPERATIONS

      ELECTRIC SALES. Electric operating revenues were $5.7 billion in 1998 or
81.7 percent of Con Edison's operating revenues. The percentages were 79.1 and
79.6, respectively, in the two preceding years. In 1998, 74.8 percent of the
electricity delivered in Con Edison's service area was sold by Con Edison to its
customers, 5.0 percent was sold by other suppliers, including Consolidated
Edison Solutions, Inc., a CEI subsidiary, to Con Edison's customers under its
electric Retail Choice program and the balance was delivered to customers of
NYPA and municipal electric agencies. Of Con Edison's sales, 31.0 percent was to
residential customers, 64.7 percent was to commercial customers, 2.5 percent was
to industrial customers and the balance was to railroads and public authorities.
For additional information about electricity sales, see "Operating Statistics,"
below, and "Results of Operations Operating Revenues and Fuel Costs" in Item 7.
For information about significant changes to Con Edison's operations resulting
from Federal and state initiatives promoting the development of competition, see
"Changes," below.

      ELECTRIC SUPPLY. Con Edison either generates the electric energy it sells,
purchases the energy from other utilities or non-utility generators ("NUGs",
sometimes referred to as independent power producers or "IPPs") pursuant to
long-term firm power contracts or purchases non-firm economy energy. Con Edison
has entered into agreements to sell most of its electric generating capacity.
See "Electric Facilities - Generating Facilities" in Item 2.

      The sources of electric energy generated and purchased during 1994 through
1998 were:

                                   1994      1995      1996      1997      1998
Generated:
  Fossil-Fueled*                   30.9%     30.1%     22.7%     29.6%     33.0%
  Nuclear (Indian Point 2)         18.4%     10.8%     17.7%      7.3%      5.8%
Total Generated                    49.3%     40.9%     40.4%     36.9%     38.8%
Firm Purchases:
  NYPA                              1.3%      1.3%      2.0%      2.1%      2.8%
  Hydro-Quebec                      4.8%      5.8%      6.0%      2.4%      4.0%
  Non-Utility Generators           12.9%     29.9%     29.5%     35.9%     34.1%
Other Purchases*                   31.7%     22.1%     22.1%     22.7%     20.3%
Total Purchased                    50.7%     59.1%     59.6%     63.1%     61.2%
Generated & Purchased               100%      100%      100%      100%      100%

---------------
* During 1995 - 1997, Con Edison, for a fee, generated electricity for others
using as boiler fuel the gas that they provided. The amounts so generated
represented 2.3 percent, 3.8 percent and 7.0 percent, respectively, of the
electric energy generated and purchased by Con Edison in 1997, 1996 and 1995.
Con Edison purchased a substantial portion of this energy for sale to its
customers.


<PAGE>
 
                                      -6-


      For further information about electric energy generated and purchased, see
"NYPA, Hydro-Quebec, Non-Utility Generators, New York Power Pool and Operating
Statistics," below. For information about significant changes to Con Edison's
operations resulting from federal and state initiatives promoting the
development of competition, see "Changes," below.

ELECTRIC PEAK LOAD AND CAPACITY.  The electric peak load in Con Edison's service
area occurs during the summer air  conditioning  season.  On July 22, 1998,  the
one-hour peak load was 10,919 thousand  kilowatts  ("MW").  The record peak load
for the service area,  which  occurred on July 15, 1997, was 11,013 MW. The 1998
peak load included an estimated 9,199 MW for Con Edison's  customers  (including
approximately  967 MW delivered by Con Edison under its electric  Retail  Choice
program)  and  1,720 MW for  NYPA's  customers  and  municipal  electric  agency
customers.  The 1998 peak, if adjusted to historical design weather  conditions,
would have been  11,450 MW, 250 MW higher  than the peak in 1997 when  similarly
adjusted.  Con Edison estimates that, under design weather conditions,  the 1999
service  peak  load  would be 11,650  MW,  including  9,835 MW for Con  Edison's
customers (approximately 2,000 MW of which would be delivered under Con Edison's
electric Retail Choice  program).  "Design weather" for the electric system is a
standard to which the actual peak load is adjusted for evaluation.

      The capacity resources available to Con Edison's service area at the time
of the system peak in the summer of 1998 totaled (before outages) 13,686 MW, of
which 10,141 MW represented net available generating capacity (including the
capacity of NYPA's Poletti and Indian Point 3 units) and 3,545 MW represented
net firm purchases by Con Edison and NYPA. Con Edison expects to have sufficient
electric capacity available to meet the requirements of its customers in 1999.
For additional information, see "Liquidity and Capital Resources - Electric
Capacity Resources" in Item 7 and "Electric Facilities" in Item 2. For
information about significant changes to Con Edison's operations resulting from
federal and state initiatives promoting the development of competition, see
"Changes," below.

      CHANGES. There have been and are continuing to be significant changes to
Con Edison's electric operations. Pursuant to a September 1997 settlement
agreement (the "Settlement Agreement") in the "Competitive Opportunities"
proceeding of the New York State Public Service Commission ("PSC"), by the end
of 2001 all of Con Edison's electric customers will be eligible to purchase
electricity from suppliers other than Con Edison. Con Edison has entered into
agreements to sell most of its electric generating capacity. For additional
information about changes to Con Edison's electric operations resulting from a
transition to a competitive electric market, see "Liquidity and Capital
Resources - CEI's Business, Open Access and the Independent System Operator, PSC
Settlement Agreement and Electric Capacity Resources" in Item 7and "Electric
Facilities - Generating Facilities" in Item 2.

      NYPA. NYPA supplies its customers in Con Edison's service area with
electricity from its Poletti fossil-fueled unit in Queens, New York, its Indian
Point 3 nuclear unit in Westchester County and other NYPA sources. Electricity
is delivered to these NYPA customers through Con Edison's transmission and
distribution facilities, and NYPA pays a delivery charge to Con Edison.

      Con Edison purchases portions of the output of Poletti and Indian Point 3
on a firm basis pursuant to arrangements that will terminate effective January
1, 2000. Con Edison also purchases firm capacity from NYPA's Blenheim-Gilboa
pumped-storage generating facility in upstate New York. Con Edison and NYPA also
sell to each other energy on a non-firm basis.


<PAGE>
 
                                      -7-


      HYDRO-QUEBEC. Con Edison has an agreement with Hydro-Quebec (a
government-owned Canadian electric utility) for the five-year period ending
March 2004 to purchase 400 MW of firm capacity during the months of April
through October (the "Diversity Contract"). The amount and price of a "basic
amount" of energy Con Edison is entitled to purchase in each year is subject to
negotiation with Hydro-Quebec. In accordance with the Diversity Contract, Con
Edison can also purchase additional energy during the summer, which it would be
obligated to return to Hydro-Quebec during the following winter. Similar
arrangements among Con Edison, NYPA and Hydro-Quebec for 780 MW of capacity
expire in March 1999.

      NON-UTILITY GENERATORS. For information about Con Edison's contracts with
NUGs, see "Liquidity and Capital Resources - PSC Settlement Agreement - Recovery
of Prior Investments and Commitments " in Item 7 and Note G to the financial
statements in Item 8.

      NEW YORK POWER POOL. Con Edison and the other major electric utilities in
New York State, including NYPA, are currently members of the New York Power
Pool. The primary purpose of the Power Pool is to coordinate planning and
operations so as to better assure the reliability of the State's interconnected
electric systems. As a member of the Power Pool, Con Edison is required to
maintain its capacity resources (net generating capacity and net firm purchases)
at a minimum reserve margin of 18% above its peak load, and to pay penalties if
it fails to maintain the required level. Con Edison met the reserve requirement
in 1998 and expects to meet it in 1999.

      The Power Pool is expected to be replaced by an independent system
operator ("ISO") during 1999. For additional information, see "Liquidity and
Capital Resources - Open Access and the Independent System Operator" in Item 7.

      MUNICIPAL ELECTRIC AGENCIES. Westchester County and New York City maintain
municipal electric agencies to purchase electric energy, including hydroelectric
energy from NYPA. Con Edison has entered into agreements with the County and
City agencies whereby Con Edison is delivering interruptible hydroelectric
energy from NYPA's Niagara and St. Lawrence projects to electric customers
designated by the agencies. These agreements each state that they may be
terminated by either party upon either one year's prior notice or, in certain
circumstances, upon 10 days' notice. A similar agreement, covering energy from
NYPA's Fitzpatrick nuclear plant, provides for termination in 2010. For
information on the amount of energy delivered, see "Operating Statistics,"
below.

GAS OPERATIONS

      GAS SALES. Gas operating revenues in 1998 were $1.0 billion or 13.7
percent of Con Edison's operating revenues. The percentages were 15.4 and 14.6,
respectively, in the two preceding years.

      Under Con Edison's gas Retail Choice program, all of Con Edison's gas
customers, either individually (at least 3,500 dekatherms per annum) or by
aggregating their demand with other customers (at least 5,000 dekatherms per
annum), became eligible in 1996 to purchase gas directly from suppliers other
than Con Edison. Regardless of whether Con Edison or another supplier sells the
gas to customers in Con Edison's service area, the gas is distributed to the
customers through Con Edison's system of distribution mains and service lines.
The customers pay Con Edison a fee (reflecting Con Edison's costs and a rate of
return on its investment in the gas system) for distributing the gas. Con Edison
sells gas to its firm gas customers at Con Edison's cost and shares with its
firm gas customers net revenues (operating revenues less the cost of gas
purchased for resale) from interruptible gas sales, off-system sales and other
"non-core" transactions. In 1998, 74.0 percent of the gas delivered in Con
Edison's service area was sold by Con Edison to its customers and the balance
was sold by other suppliers to Con Edison's customers under the gas Retail
Choice program.


<PAGE>
 
                                      -8-


      In November 1998, the PSC issued a policy statement recommending that all
New York State gas utilities terminate their gas supply or "merchant" functions
within three to seven years. The policy statement provided that utilities will
have a reasonable opportunity to recover any stranded cost. There are expected
to be utility-specific proceedings to address exit strategies and rate issues
and collaborative discussions to address reliability, provider of last resort
and market power issues.

     For further  information about Con Edison's gas operations,  see "Liquidity
and  Capital  Resources  - Gas  and  Steam  Rate  Agreements"  and  "Results  of
Operations - Operating  Revenues and Fuel Costs " in Item 7, "Gas Facilities" in
Item 2 and "Operating Statistics," below.

      GAS REQUIREMENTS. Firm demand for gas in Con Edison 's service area peaks
during the winter heating season. The design criteria for Con Edison's gas
system assume severe weather conditions that have not occurred in the service
area since 1934. Under these criteria, Con Edison estimates that the
requirements to supply its firm gas customers would amount to 63,900 thousand
dekatherms ("mdth") of gas during the 1998/99 winter heating season and that gas
available to Con Edison would amount to 92,600 mdth. For the 1999/2000 winter,
Con Edison estimates that the requirements would amount to approximately 61,300
mdth and that the gas available to Con Edison would amount to approximately
93,500 mdth. As of March 15, 1999, the 1998/99 winter peak day sendout to Con
Edison 's customers was 654 mdth, which occurred on February 22, 1999. Con
Edison estimates that, under the design criteria, the peak day requirements for
firm customers during the 1999/2000 winter season would amount to approximately
819 mdth and expects that it would have sufficient gas available to meet these
requirements.

      GAS SUPPLY. Con Edison has contracts for the purchase of firm
transportation and storage services with seven interstate pipeline companies.
Con Edison also has contracts with sixteen pipeline and non-pipeline suppliers
for the firm purchase of natural gas. Con Edison also has interruptible gas
purchase contracts with numerous suppliers and interruptible gas transportation
contracts with interstate pipelines. Con Edison expects to have sufficient gas
supply to meet the requirements of its customers in 1999.

STEAM OPERATIONS

      STEAM SALES. Con Edison sells steam in Manhattan south of 96th Street,
mostly to large office buildings, apartment houses and hospitals. In 1998, steam
operating revenues were $321.9 million or 4.6 percent of Con Edison's operating
revenues. The percentages were 5.5 and 5.8, respectively, in the two preceding
years.

     For further information about Con Edison's steam operations, see "Liquidity
and Capital  Resources - Gas and Steam Rate Agreements and Results of Operations
- Operating  Revenues and Fuel Costs " in Item 7, "Steam  Facilities"  in Item 2
and "Operating Statistics" and "Fuel Supply," below.

      STEAM SUPPLY. 39.0 percent of the steam sold by Con Edison in 1998 was
produced in Con Edison 's steam/electric generating stations, where it is first
used to generate electricity. 17.8 percent of the steam sold by Con Edison in
1998 was purchased from a NUG. The remainder was produced in Con Edison's
steam-only generating units. For information about Con Edison 's steam
facilities, see "Steam Facilities" in Item 2.

      STEAM PEAK LOAD AND CAPABILITY. Demand for steam in Con Edison's service
area peaks during the winter heating season. The one-hour peak load during the
winter of 1998/99 (through March 15, 1999) occurred on February 23, 1999 when
the load reached 9.75 million pounds. Con Edison estimates that for the winter
of 1999/2000 the peak demand of its steam customers would be approximately 12.3
million pounds per hour under design criteria which assume severe weather.


<PAGE>
 
                                      -9-


      On December 31, 1998, the steam system had the capability of delivering
about 13.4 million pounds of steam per hour. This figure does not reflect the
unavailability or reduced capacity of generating facilities resulting from
repair or maintenance. Con Edison estimates that, on a comparable basis, the
system will have the capability to deliver approximately 13.4 million pounds of
steam per hour in the 1999/2000 winter.

COMPETITION

      For information about significant changes to Con Edison's operations
resulting from federal and state initiatives promoting the development of
competition, see "Electric Operations - Changes" and "Gas Operations - Gas
Sales," above. In addition to 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 customers. CEI's non-utility subsidiaries are also subject to
competition. See "Non-Utility Subsidiaries and Regulation and Rates - Electric
Gas and Steam Rates," below and "Liquidity and Capital Resources - CEI's
Business, Open Access and the Independent System Operator, PSC Settlement
Agreement and Electric Capacity Resources" in Item 7.

NON-UTILITY SUBSIDIARIES

      CEI, which has agreed to purchase O&R (see "Liquidity and Capital
Resources - Acquisition" in Item 7), currently has four operating subsidiaries
other than Con Edison. The businesses of these non-utility subsidiaries are
subject to competition and different investment risks than Con Edison's utility
business.

      Consolidated Edison Solutions, Inc. ("CE Solutions") is an energy service
company providing competitive gas and electric supply and energy-related
products and services.

      Consolidated Edison Development, Inc. ("CE Development") invests in energy
infrastructure projects and markets technical services. CE Development has
invested in electric generating plants in California, Michigan, Guatemala and
the Netherlands.

      Consolidated Edison Energy, Inc. ("CE Energy") markets specialized energy
supply services to wholesale customers in the Northeast and Mid-Atlantic states.
In January 1999, CE Energy agreed to purchase 290 MW of electric generating
capacity from Western Massachusetts Electric Company for $47 million.

      Consolidated Edison Communications, Inc. is exploring opportunities for
leveraging the company's expertise in building and managing infrastructure,
including fiber optic cable, to build a communications business.

      For additional information about CEI's non-utility subsidiaries, see
"Liquidity and Capital Resources - Capital Requirements" and "Results of
Operations" in Item 7.

CAPITAL REQUIREMENTS AND FINANCING

      For information about the Company's capital requirements and financing,
see "Liquidity and Capital Resources - Sources of Liquidity and Capital
Requirements" in Item 7.

      For Con Edison's securities ratings, see "Liquidity and Capital Resources
- Sources of Liquidity and Capital Requirements" 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.


<PAGE>
 
                                      -10-


FUEL SUPPLY

      GENERAL. In 1998, 18.7 percent of the electricity supplied to Con Edison's
customers was obtained through economy purchases of energy produced from a
variety of fuels. Of the remaining 81.3 percent, which was either obtained
through firm purchases of energy or generated by Con Edison, oil was used to
generate 11.6 percent of the electricity, natural gas 56.9 percent, nuclear
power 7.8 percent, hydroelectric power 4.0 percent, and refuse 1.0 percent. In
1998, Con Edison used oil to produce 41.7 percent, and gas to produce 40.5
percent, of the steam supplied to Con Edison's customers. The remaining 17.8
percent was purchased by Con Edison from a NUG. Con Edison expects to continue
to have sufficient amounts of oil and gas available in 1999 for its production
of electricity and steam for its customers.

      Con Edison has entered into agreements to sell most of its electric
generating capacity, but not its Indian Point 2 nuclear generating unit. For
information about significant changes to Con Edison's operations resulting from
federal and state initiatives promoting the development of competition, see
"Electric Operations - Changes," above.

      NUCLEAR FUEL. The nuclear fuel cycle for power plants like Indian Point 2
consists of (1) mining and milling of uranium ore, (2) chemically converting the
uranium in preparation for enrichment, (3) enriching the uranium, (4)
fabricating the enriched uranium into fuel assemblies, (5) using the fuel
assemblies in the generating station and (6) storing the spent fuel.

      Con Edison has contracts covering all of its expected requirements for
uranium for the planned 2000 and 2002 refuelings of Indian Point 2. Con Edison
has contracts covering most of its expected requirements for conversion services
for the 2002 refueling. Arrangements are expected to be completed in 1999 for
the additional conversion services required for the expected 2002 refueling. Con
Edison has contracts covering most of its expected requirements for uranium
enrichment services and all of its expected requirements for fuel fabrication
services through the expiration of Indian Point 2's operating license in 2013.

      For additional information about Indian Point 2, including information on
fuel disposal, see "Electric Facilities - Generating Facilities" in Item 2,
"Liquidity and Capital Resources - Nuclear Generation" in Item 7 and "Nuclear
Decommissioning" and "Nuclear Fuel" in Note A to the financial statements in
Item 8.

      Con Edison disposes of low-level radioactive wastes ("LLRW") generated at
Indian Point at the licensed disposal facility located in Barnwell, South
Carolina. Under the 1985 Federal Low Level Radioactive Waste Amendments Act, New
York State was required by January 1996 to provide for permanent disposal of all
LLRW generated in the state. New York State has not provided for such disposal.
Con Edison expects that it will be able to provide for such storage of LLRW as
may be required until New York State establishes a storage or disposal facility
or adopts some other LLRW management method.


<PAGE>
 
                                      -11-


REGULATION AND RATES

      GENERAL. CEI is a "public utility holding company" under the Public
Utility Holding Company Act of 1935 (the "1935 Act"). CEI is exempt from all
provisions of the 1935 Act, 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 CEI
and Con Edison are each organized and carry on their utility businesses
substantially in the State of New York and that neither derives any material
part of its income from a public utility company organized outside of the State
of New York. CEI's acquisition of O&R (see "Liquidity and Capital Resources -
Acquisition") is subject to SEC approval, but CEI does not expect that the
acquisition will affect its ability to rely on this exemption. This exemption is
available even though CEI subsidiaries that are neither an "electric utility
company" nor a "gas utility company" under the 1935 Act will engage in
interstate activities. To maintain this exemption, CEI must file an exemption
statement with the SEC each year prior to March 1. The exemption may be revoked
by the SEC if a substantial question of law or fact exists as to whether CEI is
within the parameters of the exemption, or if it appears that the exemption may
be detrimental to the public interest or the interest of investors or consumers.

      The New York State Public Service Commission ("PSC") regulates, among
other things, Con Edison's electric, gas and steam rates, the siting of its
transmission lines and the issuance of its securities. Certain activities of Con
Edison are subject to the jurisdiction of the Federal Energy Regulatory
Commission. The Nuclear Regulatory Commission regulates Con Edison's Indian
Point 2 and its retired Indian Point 1 nuclear units. In addition, various
matters relating to the construction and operation of Con Edison's facilities
are subject to regulation by other governmental agencies. For information about
changes in regulation affecting the Company, see "Liquidity and Capital
Resources - CEI's Business, Open Access and the Independent System Operator, PSC
Settlement Agreement, Electric Capacity Resources, Nuclear Generation, and Gas
and Steam Rate Agreements" in Item 7.

      CEI is not subject to regulation by the PSC, the Federal Energy Regulatory
Commission or the Nuclear Regulatory Commission, except to the extent that the
rules or orders of these agencies impose restrictions on relationships between
Con Edison and CEI and its other subsidiaries. See "Liquidity and Capital
Resources - PSC Settlement Agreement - Corporate Structure" in Item 7.

      ELECTRIC, GAS and STEAM RATES. Con Edison's electric, gas and steam rates
are among the highest in the country. For information about Con Edison's rates,
see "Liquidity and Capital Resources - PSC Settlement Agreement and Gas and
Steam Rate Agreements" in Item 7.

      UNIFORM BUSINESS PRACTICES. The PSC has adopted, effective June 1999,
uniform business practice rules governing the relationship between customers,
energy service companies ("ESCOs") and utilities. Under its electric and gas
Retail Choice programs, Con Edison has allowed customers of ESCOs to elect to
receive one bill from their ESCO for all amounts owed to the ESCO and Con Edison
and to pay the entire amount of the bill to the ESCO which would be responsible
for remitting to Con Edison its share of the payment. Under Con Edison's current
practice, if an ESCO does not remit payment to Con Edison the customer remains
liable to pay Con Edison. Under the PSC's new rules, the credit requirements for
ESCOs that a utility may impose would be restricted and the utility will be
prohibited from recovering from a customer amounts owed the utility when the
customer has already paid the amounts to an ESCO and the ESCO has failed to pay
the utility. The PSC has indicated that the utility "may notify the Commission
if it wishes to recover any lost revenues beyond those covered by the security
deposits." Con Edison has petitioned the PSC for a rehearing regarding the
uniform business practice rules and indicated that Con Edison intends to
eliminate the one-bill payment option if the request for rehearing is not
granted. For information about significant changes to Con Edison's operations
resulting from Federal and state initiatives promoting the development of
competition, see "Electric Operations - Changes" and "Gas Operations - Gas
Sales," above.


<PAGE>
 
                                      -12-


      STATE ENERGY PLAN. In November 1998, the New York State Energy Planning
Board released its most recent State Energy Plan. The Plan is designed to
provide "strategic direction and policy guidance, and to coordinate the State
government's activities and responses to the fundamental changes that will occur
over the next several years (e.g., giving consumers greater opportunity to chose
energy suppliers and lower costs)." The Plan provides broad energy policy
direction instead of specifying government actions to be taken. Under New York
State law, any energy-related decisions of State agencies must be reasonably
consistent with the Plan.

ENVIRONMENTAL MATTERS AND RELATED LEGAL PROCEEDINGS

      GENERAL. Con Edison's capital expenditures for environmental protection
facilities and related studies were approximately $36 million in 1998 and are
estimated to be approximately $39 million in 1999, including $3 million relating
to electric generating facilities which Con Edison has agreed to sell (see
"Electric Facilities - Generating Facilities" in Item 2), and $15 million in
2000.

      INDIAN POINT. The Company believes that a serious accident at its Indian
Point 2 nuclear unit is extremely unlikely, but despite substantial insurance
coverage, the losses to the Company in the event of a serious accident could
materially adversely affect the Company's financial position and results of
operations. For information about Indian Point 2 and Con Edison's retired Indian
Point 1 nuclear unit, see "Electric Operations" and "Fuel Supply - Nuclear Fuel"
above, "Water Quality" below, "Electric Facilities - Generating Facilities" in
Item 2, "Liquidity and Capital Resources - Capital Requirements and Nuclear
Generation " in Item 7 and Notes A and F to the financial statements in Item 8.

      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's operations, materials are generated that are deemed to be
hazardous substances under Superfund. These materials include asbestos and
dielectric fluids containing polychlorinated biphenyls (PCBs). Other hazardous
substances are generated in Con Edison's operations or may be present at Con
Edison locations. Also, hazardous substances were generated at the manufactured
gas plants that Con Edison and its predecessor companies used to operate. See
"Superfund" in Item 3 and "Environmental Matters - Superfund Claims" in Note F
to the financial statements in Item 8.

      ASBESTOS. Asbestos is present in numerous Con Edison facilities. For
information about asbestos, see "Environmental Matters - Asbestos Claims" in
Note F to the financial statements in Item 8 and "Asbestos Litigation" in Item
3.

      TOXIC SUBSTANCES CONTROL ACT. Virtually all electric utilities, including
Con Edison, own equipment containing PCBs. PCBs are regulated under the Federal
Toxic Substances Control Act of 1976. Con Edison has reduced substantially the
amount of PCBs in electrical equipment it uses, including transformers located
in or near public buildings.  See "Superfund" in Item 3.

      WATER QUALITY. The Federal Clean Water Act provides for effluent
limitations, to be implemented by a permit system, to regulate the discharge of
pollutants, including heat, into United States waters. In 1981, Con Edison
entered into a settlement with the United States Environmental Protection Agency
("EPA") and others that relieved Con Edison for at least 10 years from a
proposed regulatory agency requirement that, in effect, would have required that
cooling towers be installed at the Bowline Point, Roseton and Indian Point
units. (See Electric Facilities - Generating Facilities" in Item 2.) In return
Con Edison agreed to certain plant modifications, operating restrictions and
other measures and surrendered its operating license for a proposed
pumped-storage facility that would have used Hudson River water.


<PAGE>
 
                                      -13-


      In September 1991, after the expiration of the 1981 settlement, three
environmental interest groups commenced litigation challenging the permit status
of the units pending renewal of their discharge permits, which expired in
October 1992. Under a consent order settling this litigation, certain
restrictions on the units' usage of Hudson River water were imposed on an
interim basis. Permit renewal applications were filed in April 1992, after which
the New York State Department of Environmental Conservation ("DEC") determined
that Con Edison must submit a draft environmental impact statement ("DEIS") to
provide a basis for determining new permit conditions. The preliminary DEIS,
submitted in July 1993, includes an evaluation of the costs and environmental
benefits of potential mitigation alternatives, one of which is the installation
of cooling towers. Con Edison has been participating with the DEC and several
environmental groups in reviewing the preliminary DEIS. A revised and updated
DEIS will be prepared for public comment. Pending issuance of final renewal
permits, the terms and conditions of the expired permits continue in effect.

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

      ELECTRIC AND MAGNETIC FIELDS. Electric and magnetic fields (EMF) are found
wherever electricity is used. Several scientific studies have raised concerns
that EMF surrounding electric equipment and wires, including power lines, may
present health risks. In October 1996, the National Academy of Science issued a
report concluding that "the current body of evidence does not show that exposure
to [EMF] presents a human health hazard." In July 1997, the National Cancer
Institute Childhood Cancer study indicated that the results of their study
"provide little support for the hypothesis that living in homes with high
time-weighted average magnetic-field levels or in homes close to electrical
transmission or distribution lines is related to the risk of childhood
[leukemia]." See "Environmental Matters - EMF" in Note F to the financial
statements in Item 8.

GENERAL

      STATE ANTITAKEOVER LAW. New York State law provides that a "resident
domestic corporation," such as CEI or 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 the 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

      At December 31, 1998, the Company had 14,322 employees, including 14,214
Con Edison employees and 108 employees of CEI's non-utility subsidiaries. A
collective bargaining agreement with the union representing about two-thirds of
Con Edison's employees expires in June 2000.

RESEARCH AND DEVELOPMENT

      For information about the Company's research and development costs, see
Note A to the financial statements in Item 8.


<PAGE>
 
                                      -14-

CON EDISON OPERATING STATISTICS

<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31                       1998         1997         1996         1995         1994
--------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>          <C>          <C>       
ELECTRIC Energy (MWhrs)
Generated (a)                             16,594,232   15,877,467   17,823,778   18,436,798   20,419,828
Purchased from Others (a)                 26,319,422   27,105,143   26,178,042   26,700,594   21,036,437
Total Generated and Purchased             42,913,654   42,982,610   44,001,820   45,137,392   41,456,265
Less:   Supplied without direct charge            68           71           71           71           73
        Used by Company                      155,172      155,934      164,206      165,934      134,940
        Distribution losses and
                   other variances         2,429,301    2,799,039    2,716,235    2,977,547    2,762,315
Net Generated and Purchased               40,329,113   40,027,566   41,121,308   41,993,840   38,558,937

Electric Energy Sold:
        Residential                       11,282,669   11,002,745   10,867,085   10,848,648   10,660,148
        Commercial and Industrial         24,455,265   25,911,199   25,725,502   25,492,489   25,511,974
        Railroads and Railways                87,514       75,392       47,004       47,482       47,289
        Public Authorities                   548,569      538,643      564,363      569,749      554,753
Total Sales to Con Edison Customers       36,374,017   37,527,979   37,203,954   36,958,368   36,774,164
Off-System Sales (a) (b)                   3,955,096    2,499,587    3,917,354    5,035,472    1,784,773
Total Electric Energy Sold                40,329,113   40,027,566   41,121,308   41,993,840   38,558,937

Total Sales to Con Edison Customers       36,374,017   37,527,979   37,203,954   36,958,368   36,774,164
Delivery Service for Retail Choice         2,417,321           --           --           --           --
Delivery Service to NYPA
        Customers and Others               9,039,674    8,793,378    8,816,873    8,855,790    8,773,155
Service for Municipal Agencies               814,575      845,895      617,293      456,728      413,893
Total Sales in Franchise Area             48,645,587   47,167,252   46,638,120   46,270,886   45,961,212

Average Annual kWhr Use Per
        Residential Customer (c)               4,303        4,225        4,184        4,188        4,136

Average Revenue Per kWhr Sold (cents):
        Residential (c)                         16.2         16.6         16.5         16.1         15.8
        Commercial and Industrial (c)           12.7         13.0         12.9         12.5         12.2
</TABLE>

(a)   For 1997, 1996 and 1995, amounts generated include 973,483, 1,672,603 and
      3,159,047 MWhrs, respectively, that Con Edison, for a fee, generated for
      others using as boiler fuel the gas that they provided. These amounts are
      also included in off-system sales. For 1997, 1996 and 1995, amounts
      purchased include 929,483, 1,553,764 and 2,666,837 MWhrs, respectively, of
      such electric energy that was subsequently purchased by Con Edison.

(b)   For 1998, include sales by Con Edison to CE Solutions. See
      "Non-Utility Subsidiaries," above.

(c)   Includes Municipal Agency sales.


<PAGE>
 
                                      -15-

CON EDISON OPERATING STATISTICS

<TABLE>
<CAPTION>
=====================================================================================================================
Year Ended December 31                        1998            1997            1996            1995            1994
---------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>             <C>        
GAS (Dth)

Purchased                                 232,560,023     242,296,610     219,439,813     217,268,986     208,328,267
Storage - net change                       (4,404,888)     (1,630,463)     (4,032,224)      9,469,767      (4,410,363)
    Used as boiler fuel  at Electric
     and Steam Stations                  (109,240,109)   (109,508,555)    (84,849,049)   (110,761,124)    (92,680,221)
Gas Purchased for Resale                  118,915,026     131,157,592     130,558,540     115,977,629     111,237,683

Less: Gas used by Company                     376,577         239,359         272,040         237,688         221,715
      Off-System Sales & NYPA              26,104,143      14,216,403      11,023,023       4,887,971              --
      Distribution losses
         and other variances                 (820,174)        104,531         176,930       4,654,832       2,443,486
Total Gas Sold to Con Edison Customers     93,254,480     116,597,299     119,086,547     106,197,138     108,572,482

Gas Sold
Firm Sales:
      Residential                          45,106,269      53,217,428      56,590,018      51,702,329      53,981,416
      General                              30,685,310      39,468,337      42,190,091      39,021,997      39,365,003
      Total Firm Sales                     75,791,579      92,685,765      98,780,109      90,724,326      93,346,419
Interruptible Sales                        17,462,901      23,911,534      20,306,438      15,472,812      15,226,063
Total Gas Sold to Con Edison Customers     93,254,480     116,597,299     119,086,547     106,197,138     108,572,482
Transportation of Customer-Owned Gas:
      Firm Transportation                   8,634,659         808,026              --              --              --
      NYPA                                  4,260,908      17,041,695       4,966,983      24,972,796      14,546,325
      Other                                14,478,269       7,656,874       5,011,124       5,388,393       3,823,176
Off-System Sales                           25,982,200      13,958,984      11,293,425       3,376,375              --
Total Sales and Transportation            146,610,516     156,062,878     140,358,079     139,934,702     126,941,983

Average Revenue Per Dth Sold:
      Residential                        $      11.75    $      11.22    $      10.00    $       9.43    $       9.85
      General                            $       7.95    $       8.14    $       7.15    $       6.38    $       7.05

STEAM Sold (Mlbs):                         24,995,694      27,422,561      29,995,762      29,425,780      30,685,155

Average Revenue per Mlbs Sold            $      12.83    $      14.23    $      13.34    $      11.35    $      11.10

CUSTOMERS - Average for Year
Electric                                    3,030,746       3,010,139       3,001,870       2,994,447       2,980,026
Gas                                         1,040,410       1,036,098       1,035,528       1,034,784       1,031,675
Steam                                           1,898           1,920           1,932           1,945           1,964
</TABLE>


<PAGE>
 
                                      -16-


ITEM 2. PROPERTIES

      At December 31, 1998, the capitalized cost of Con Edison's utility plant,
net of accumulated depreciation, (and excluding $98.8 million of nuclear fuel
assemblies) was as follows:

                                    Net Capitalized Cost        Percentage of
Classification                     (millions of dollars)      Net Utility Plant
In Service:
      Electric:
        Generation                      $ 1,512.4                   13%
        Transmission                      1,114.7                   10%
        Distribution                      5,603.0                   50%
      Gas                                 1,411.7                   13%
      Steam                                 500.5                    4%
      Common                                813.0                    7%
Held For Future Use                           5.1                   --
Construction Work in Progress               347.3                    3%
                                        ---------                  ---
Net Utility Plant                       $11,307.7                  100%

ELECTRIC FACILITIES

      GENERATING FACILITIES. Con Edison has entered into agreements to sell 
approximately 5,500 MW of its New York City fossil-fueled electric
generating capacity, including its Ravenswood, Astoria and Arthur Kill
generating stations and associated gas turbines, and its approximately 800 MW
interest in the Bowline Point station (which is jointly-owned with, and operated
by, O&R). Following completion of the sales, Con Edison plans to meet its
continuing obligation to supply electricity to its customers through purchases
of electricity principally in the New York ISO's markets for installed capacity
and energy; electricity from Con Edison's remaining generating facilities and
contracts with NUGs and others is expected to be made available for sale on the
ISO's markets. If the generation sales are completed prior to the start of
operation of the ISO, Con Edison anticipates that it would meet its customers'
requirements using electricity from its remaining generating facilities and
existing capacity and energy contracts , including contracts with the buyers of
the capacity being sold. For additional information, see "Liquidity and Capital
Resources - PSC Settlement Agreement - Generation Divestiture and Recovery of
Prior Investments and Commitments and Electric Capacity Resources" in Item 7.

      In March 1998, the PSC instituted a proceeding to examine issues relating
to nuclear generation in a competitive market. The PSC adopted "as a rebuttable
presumption the premise that nuclear power should be priced on a market-basis to
the same degree as power from other sources, and parties challenging that
premise bear a substantial burden of proof." The PSC indicated that "divestiture
[of nuclear plants], even if ultimately required, would not be mandated before
the end of the transition period [`roughly 2002']." For additional information
about Con Edison's Indian Point 2 nuclear unit, see "Electric Operations," "Fuel
Supply - Nuclear Fuel", "Environmental Matters and Related Legal Proceedings -
Indian Point and Water Quality" in Item 1, "Liquidity and Capital Resources -
Capital Requirements and Nuclear Generation" in Item 7 and Notes A and F to the
financial statements in Item 8.

      Con Edison has a 40 percent interest in the jointly-owned Roseton electric
generating station. Central Hudson Gas & Electric Corporation ("Central
Hudson"), which operates the Roseton station, has a 35 percent interest and
Niagara Mohawk Power Corporation ("Niagara Mohawk") a 25 percent interest.
Central Hudson has agreed to divest its generation as part of its settlement
agreement in the PSC's Competitive Opportunities proceeding. Con Edison, Central
Hudson and Niagara Mohawk have reciprocal rights of first refusal on any sale of
the others' interest in the station. In addition, Central Hudson has the option,
exercisable in 1999, to acquire Con Edison's interest in 2004.


<PAGE>
 
                                      -17-


      As shown in the following table, at December 31, 1998, Con Edison's net
maximum generating capacity (on a summer rating basis) was 8,278 MW, without
reduction to reflect the unavailability or reduced capacity at any given time of
particular units because of maintenance or repair or their use to produce steam
for sale.

Generating                       Net Generating Capacity  Percentage of Electric
   Stations                        at December 31, 1998    Energy Generated and
                               (Megawatts-Summer Rating)   Purchased in 1998*
Fossil-Fueled:
   Ravenswood (3 Units)                      1,742                   8.6%
   Astoria (3 Units)                         1,075                  10.0%
   Arthur Kill (2 Units)                       826                   2.9%
   East River (2 Units)                        300                   1.1%
   Bowline Point (2 Units)                           
        - two-thirds interest                  810                   4.5%
   Roseton (2 Units)                                 
        - 40% interest                         482                   3.8%
   Other (4 Units)                             187                   1.2%
                                            ------                 -----
            Subtotal                         5,422                  32.1%
Nuclear - Indian Point                         931                   5.7%
Gas Turbines (39 Units)                      1,925                   1.0%
                                             -----                ------
            Total                            8,278                  38.8%

----------
* For information about the electric energy purchased by Con Edison, see
"Electric Operations" in Item 1.

     Con Edison's generating stations are located in New York City with the
    exception of the Indian Point nuclear station in Westchester County, New
      York; the Bowline Point station in Rockland County, New York; and the
                   Roseton station in Orange County, New York.

      TRANSMISSION FACILITIES. Con Edison has transmission interconnections with
Niagara Mohawk, Central Hudson, O&R, New York State Electric and Gas
Corporation, Connecticut Light and Power Company, Long Island Lighting Company,
NYPA and Public Service Electric and Gas Company. Con Edison's transmission
facilities are located in New York City and Westchester, Orange, Rockland,
Putnam and Dutchess counties in New York State.

      At December 31, 1998, Con Edison's transmission system had approximately
432 miles of overhead circuits operating at 138, 230, 345 and 500 kilovolts and
approximately 381 miles of underground circuits operating at 138 and 345
kilovolts. There are approximately 267 miles of radial subtransmission circuits
operating at 138 kilovolts. Con Edison's 14 transmission substations, supplied
by circuits operated at 69 kilovolts and above, have a total transformer
capacity of 15,731 megavolt amperes.

      At December 31, 1998, the transmission capacity to receive power from
outside New York City to supply in-City load during the summer peak period was
4,915 MW. The 1998 one-hour peak load in Con Edison's service area was 10,919
MW, of which 9,575 MW was for use within the City. See "Electric Operations -
Electric Peak Load and Capacity" in Item 1. In-City load in excess of
transmission capacity must be supplied by in-City generating stations. See
"Generating Facilities," above.

      DISTRIBUTION FACILITIES. Con Edison owns various distribution substations
and facilities located throughout New York City and Westchester County. At
December 31, 1998, Con Edison's distribution system had 290 distribution
substations, with a transformer capacity of 20,168 megavolt amperes, 32,429
miles of overhead distribution lines and 87,910 miles of underground
distribution lines.


<PAGE>
 
                                      -18-


GAS FACILITIES

      Natural gas is delivered by pipeline to Con Edison at various points in
its service territory and is distributed to customers by Con Edison through
approximately 4,200 miles of mains and 362,300 service lines. Con Edison 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. Con Edison 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.

STEAM FACILITIES

      Con Edison generates steam for distribution at three steam/electric
generating stations and five steam-only generating stations and distributes
steam to customers through approximately 86 miles of mains and 18 miles of
service lines. In October 1998, the PSC approved a long-range plan for Con
Edison's steam system. The plan includes further studies on the future structure
of the steam system. Con Edison expects to submit its Phase II Steam System Plan
to the PSC in 1999.

OTHER FACILITIES

      Con Edison also owns or leases various pipelines, fuel storage facilities,
office equipment, a thermal outfall structure at Indian Point, and other
properties located primarily in New York City and Westchester, Orange, Rockland,
Putnam and Dutchess counties in New York State.

ITEM 3. LEGAL PROCEEDINGS

SUPERFUND

      The following is a discussion of significant proceedings pending under
Superfund or similar statutes involving sites for which Con Edison has been
asserted to have a liability. The list is not exhaustive and additional
proceedings may arise in the future. For a further discussion of claims and
possible claims against Con Edison under the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (Superfund) and the estimated
liability accrued for certain Superfund claims, see "Environmental Matters and
Related Legal Proceedings - Superfund" in Item 1, and "Environmental Matters -
Superfund" in Note F to the financial statements in Item 8.

MAXEY FLATS NUCLEAR DISPOSAL SITE. In 1986, EPA designated Con Edison 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 minimis PRPs, large private party PRPs
(including Con Edison) and large federal agency PRPs entered into consent
decrees with respect to the funding and implementation of the cleanup program
required by EPA for the site. Under the consent decrees, the large private party
PRPs will be 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 will be shared with the large federal
agency PRPs. Also, if during this ten-year period 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
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. Con Edison's share of the cleanup costs is
estimated to be between $500,000 and $600,000.


<PAGE>
 
                                      -19-


      CURCIO SCRAP METAL SITE. In 1987, EPA designated Con Edison, a Superfund
PRP for the Curcio Scrap Metal, Inc. Site in Saddle Brook, New Jersey, because
Con Edison 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, EPA issued a Unilateral Administrative Order that required Con Edison and
three other PRPs to commence a soil and sediment cleanup at and around the site.
In 1997, EPA issued a Record of Decision, which concluded that the soil and
sediment cleanup had successfully remediated the principal threats associated
with the site and which required periodic groundwater monitoring for five years.
Con Edison has agreed to conduct the required groundwater monitoring, which EPA
estimates will cost approximately $200,000. Depending on the results of the
monitoring, 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, EPA designated Con Edison a Superfund
PRP for the Metal Bank of America Site in Philadelphia. The site, a former metal
recycling facility, was placed on EPA's national priority list in 1983. PCBs
have been found in the site soil and groundwater and in the sediment from areas
of a tidal mudflat and the Delaware River along the site's shoreline. During the
1970s, Con Edison sold approximately 125 transformers to scrap metal dealers who
salvaged or may have salvaged the transformers at the site. In 1997, 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 electric
utility PRPs to design and implement the cleanup program. The cost of the
required cleanup program, estimated at between $24 million and $30 million, will
be allocated among the utilities, with Con Edison's share expected to be
approximately one percent.

      NARROWSBURG SITE. In 1987, the New York State Attorney General notified
Con Edison that it is a Superfund PRP for the Cortese Landfill Site in
Narrowsburg, New York because during 1974 Con Edison had disposed of waste oil
at the landfill. The Cortese Landfill is listed on 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 Landfill site owner and operator and SCA Services
("SCA"), an alleged transporter of hazardous substances to the site. In 1989,
SCA commenced a third-party action for contribution against Con Edison and
various other parties whose chemical waste was allegedly disposed of at the
site. Con Edison and SCA have reached a settlement of the third-party action
under which Con Edison paid $114,485 toward the cost of the site environmental
studies and will pay 6 percent of the first $25 million of remedial costs for
the site. SCA has agreed to indemnify Con Edison 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 and various other site
PRPs have agreed to implement the cleanup program, pay EPA's oversight costs for
the site and pay approximately $220,000 for natural resource damages.

      CARLSTADT SITE. In 1990, Con Edison 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, which is
pending before the United States District Court for the District of New Jersey,
alleges that Con Edison 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 7 to 15 million gallons of waste solvents and oil
were recycled at the site and based on this estimate, Con Edison'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 $10 million, to control releases
from the site while the EPA evaluates and develops a final cleanup remedy.


<PAGE>
 
                                      -20-


     GLOBAL  LANDFILL SITE. Con Edison has been designated 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  because  in 1984 Con Edison
shipped  approximately 10 cubic yards of asbestos waste to the site. The site is
included on the Superfund National  Priorities List and is being administered by
the New Jersey  Department of  Environmental  Protection  and Energy  ("NJDEPE")
pursuant to an agreement  between the EPA and the State of New Jersey.  The site
PRP group,  including  Con Edison,  has entered  into a consent  decree with the
NJDEPE  to  implement,  with  partial  funding  from  NJDEPE,  a Phase I remedy,
estimated  to cost $30 million.  Con  Edison's  share of the cost of the Phase I
remedy is estimated at $150,000. In 1997, the EPA issued a Record of Decision in
which it selected a Phase II cleanup  program  estimated  to cost  approximately
$2.4 million of which Con Edison's share has not been determined.

      CHEMSOL SITE. In 1991, the EPA advised Con Edison 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 Con Edison sent waste materials to
the site from 1960 to 1965. In response to the EPA's demand for records,
including any relating to Cenco Instruments Corp., Con Edison submitted to the
EPA records of payments to Central Scientific Company, a Division of Cenco
Instruments Corp.. Con Edison is unable at this time to determine either the
purpose of the payments to Central Scientific Company or the connection of that
company to the site. The EPA has not designated Con Edison 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.

      ECHO AVENUE SITE. In 1987, the DEC classified Con Edison's former Echo
Avenue substation site in New Rochelle, New York as an "Inactive Hazardous Waste
Disposal Site" because of the presence of PCBs in the soil and in the buildings
on the site. Remedial action has been taken under a consent order with the DEC.
In 1993, the owners of Echo Bay Marina filed suit in the United States District
Court for the Southern District of New York alleging that PCBs were being
discharged into the Long Island Sound from the substation site. Plaintiffs
sought $24 million for personal injuries and property damages, a declaration
that Con Edison is in violation of the Clean Water Act, civil penalties of
$25,000 per day for each violation, remediation costs, an injunction against
further discharges and legal fees. In 1994, the court dismissed plaintiffs
claims for property damage, including loss of business. Con Edison expects to
file a motion for summary judgment on the personal injury claims during the
second quarter of 1999. Trial on the claims that remain is set for September
1999.

      PCB TREATMENT, INC. SITES. In 1994, EPA designated Con Edison 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
which had been used by PTI from 1982 until 1987 for the storage, processing, and
treatment of PCB-containing electric equipment, dielectric oils, and materials.
According to EPA, the buildings' floor slabs and walls and the soil areas
outside the buildings' loading docks are contaminated with PCBs. In 1996, Con
Edison joined a PRP steering committee that is conducting studies at the sites
under an EPA administrative consent order and is negotiating a cost sharing
agreement with the federal agency PRPs that had shipped PCB-containing equipment
and oil to the sites. Based on preliminary information, Con Edison currently
believes that its share of the study and remediation costs could exceed $5
million.

      PELHAM MANOR SITE. Prior to 1968, Con Edison and its predecessor companies
operated a manufactured gas plant on a site located in Pelham Manor, Westchester
County, which is now used for a shopping center. Soil and groundwater tests by
the current lessees of the site indicate the presence of hazardous substances
which are associated with the manufactured gas process. Con Edison has agreed to
participate with the lessees in further site studies and in the development and
implementation of a cleanup plan that is acceptable to the DEC. The site studies
are now being conducted under a voluntary agreement between the lessees and the
DEC, with funding by Con Edison.


<PAGE>
 
                                      -21-


      ASTORIA SITE. Con Edison is required to conduct a site investigation and,
where necessary, a remediation program as a condition to renewal by the DEC of
Con Edison's permit to store PCBs at Con Edison's Astoria generating station
site in Queens, New York. The site investigation was completed in 1998 and
reports, indicating PCB-contamination of portions of the site, have been
submitted to the DEC and the New York State Department of Health. Depending on
the remediation action required, the costs of remediation could be material. Con
Edison has entered into an agreement to sell the Astoria generating station in
which the buyer has generally agreed to assume all environmental liabilities
relating to the assets sold other than for prior offsite disposal of hazardous
waste. See "Electric Facilities - Generating Facilities" in Item 2.

      HUNTS POINT SITE. In 1994, the City of New York notified Con Edison that
it had discovered various contaminants on the site of a former Con Edison
manufactured gas plant in the Hunts Point section of The Bronx. Con Edison had
manufactured gas at that location prior to its sale of the site to the City in
the 1960s. Con Edison has agreed to conduct a site study and to develop and
implement a remediation program. However, Con Edison has not agreed to pay costs
for contamination that is unrelated to Con Edison's use of the site. Con Edison
is unable at this time to estimate its exposure to liability with respect to
this site.

      ANCHOR MOTOR SITE. In 1995, Anchor Motor Freight, Inc. notified Con Edison
that it had discovered coal tar on its site in Westchester County. A predecessor
of Con Edison had operated a manufactured gas plant at that location prior to
the 1940's. Coal tar has been found beneath the areas formerly occupied by the
manufactured gas plant, in the Hudson River along the bulkhead of an asphalt
plant located between the site and the river and beneath portions of the asphalt
plant property. Con Edison will develop a remedial action program under a
voluntary cleanup agreement with the DEC. The cost of the cleanup program being
considered for the contaminated section of the Hudson River is estimated at
almost $2.4 million. The cost of the cleanup program for the coal tar
contamination present on the Anchor and asphalt plant properties could exceed
$24 million if the DEC requires Con Edison to excavate all of the coal tar.

     BORNE  CHEMICAL  SITE.  In 1997,  Con  Edison  was  named as an  additional
third-party  defendant  in a private  cost  recovery  action  in the New  Jersey
Superior Court (Union County) under the Spill 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 at various times.
Con Edison and four other  third-party  defendants  in the lawsuit  have entered
into a settlement  with the third-party  plaintiffs  under which Con Edison paid
$70,434  and  agreed to assume  responsibility  for  approximately  0.67% of the
expenses that the third-party plaintiffs incur 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 was served  with a  complaint  by DMJ
Associates  seeking to compel Con  Edison  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  sent  waste  to  the  Quanta   Resources
("Quanta")facility  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 is  investigating
whether  it sent any waste to  Quanta.  Con  Edison  is  defending  this  action
pursuant to a joint defense agreement with the other generator defendants.


<PAGE>
 
                                      -22-


      ARTHUR KILL TRANSFORMER SITE. The United States Attorney for the Southern
District of New York and regulatory agencies are investigating Con Edison's
response to a September 1998 transformer fire at Con Edison's Arthur Kill
generating station. Following the fire, it was determined that oil containing
high levels of PCBs was released to the environment during the incident. Con
Edison is cooperating with the investigations and is conducting DEC approved
cleanup programs for the station's facilities and various soil and pavement
areas of the site affected by the PCB release. Con Edison has been advised that
DEC intends to designate the waterfront area of the station as an inactive
hazardous waste disposal site. Con Edison has entered into an agreement to sell
the Arthur Kill generating station in which the buyer has 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. See "Electric Facilities Generating Facilities" in Item
2.

ASBESTOS LITIGATION

      Asbestos is present in numerous Con Edison facilities. For a discussion of
asbestos and suits against Con Edison involving asbestos, see "Environmental
Matters - Asbestos Claims" in Note F to the financial statements in Item 8. The
following is a discussion of the significant suits involving asbestos in which
Con Edison has been named a defendant. The listing is not exhaustive and
additional suits may arise in the future.

      MASS TORT CASES. Numerous suits have been brought in New York State and
Federal courts against Con Edison and many other defendants for death and
injuries allegedly caused by exposure to asbestos at various Con Edison
premises. Many of these suits have been disposed of without any payment by Con
Edison, or for immaterial amounts. The amounts specified in the remaining suits,
including the Moran v. Vacarro suit discussed below, total billions of dollars,
but Con Edison believes that these amounts are greatly exaggerated, as were the
claims already disposed of.

      MORAN, ET AL. V. VACARRO, ET AL. In 1988, Con Edison was served with a
complaint and an amended complaint in an action in the New York State Supreme
Court, New York County, in which approximately 188 Con Edison employees and
their union alleged that the employees were exposed to dangerous levels of
asbestos as a result of alleged intentional conduct of supervisory employees.
Each of the employee plaintiffs sought $1 million in punitive damages, $1
million in damages for mental distress, unspecified additional compensatory
damages, and to enjoin Con Edison from violating EPA regulations and exposing
employees to asbestos without first taking certain safety measures. In 1990, the
complaint was amended to add the spouses of 131 plaintiffs as additional
plaintiffs and to remove the union as a plaintiff. Each spouse seeks medical
monitoring, $1 million for emotional distress and $1 million for punitive
damages. In 1995, the court dismissed the claims of the employee plaintiffs,
leaving employee spouses as the only plaintiffs.

RATE PROCEEDINGS

      New York State law requires electric and gas utilities to make available
to religious organizations rates that do not exceed those charged to residential
customers. In 1994, Con Edison and the New York Attorney General executed a
settlement under which Con Edison admitted no wrongdoing but agreed to provide
refunds to religious organizations that had been served under generally higher
commercial rates and transfer affected customers to the appropriate rates. In
August 1997, the United States District Court for the Southern District of New
York dismissed a suit against Con Edison, entitled Brownsville Baptist Church,
et. al. v. Consolidated Edison Company of New York, Inc., in which plaintiffs
sought $500 million for purported class members that operated as religious
organizations and were charged commercial rates for electric service. The United
State Court of Appeals for the Second Circuit in July 1998 affirmed the
dismissal and in September 1998 denied plaintiffs motion for reargument. In
January 1998, these plaintiffs sued Con Edison in New York State Supreme Court,
County of Kings, claiming violations of New York State law, fraud, unjust
enrichment and negligent misrepresentation. In November 1998, the court
dismissed the January 1998 lawsuit and denied plaintiffs' motion to certify the
class. The plaintiffs are appealing this decision.


<PAGE>
 
                                      -23-


CHALLENGE TO SETTLEMENT AGREEMENT

      In February 1998, the Public Utility Law Project of New York, Inc.
("PULP") commenced a lawsuit in the Supreme Court of the State of New York,
County of Albany against the PSC and Con Edison challenging certain provisions
of the Settlement Agreement, including the PSC's authority to institute retail
access for residential consumers. PULP has pending a similar lawsuit against the
PSC with respect to the PSC's May 1996 generic order in the PSC's "Competitive
Opportunities" proceeding. In October 1998, the court granted the PSC's motion
to appeal the court's September 1998 denial of the motions to dismiss. Con
Edison does not expect the lawsuit to result in a material adverse effect on its
financial condition, results of operations or liquidity. For information about
the Settlement Agreement, see "Liquidity and Capital Resources - PSC Settlement
Agreement" in Item 7.

EMPLOYEES' CLASS ACTION

      In January 1998, seven current employees and one former employee of Con
Edison sought class certification in a proceeding pending in the United States
District Court for the Eastern District of New York. In January 1994, plaintiffs
initiated the action, entitled Sheppard, et al. v. Con Edison, in a lawsuit
alleging that employees have been denied promotions or transfer because of their
race. Two years earlier the same plaintiffs filed similar claims against Con
Edison with the New York City Commission on Human Rights. Before the Commission
concluded its investigation, plaintiffs withdrew their claims. Plaintiffs are
seeking back-pay, compensatory and punitive damages, injunctive relief
(including promotions for those allegedly improperly denied promotions), and
reformation of Con Edison's personnel practices.

NUCLEAR FUEL DISPOSAL

      Reference is made to the information under the caption "Liquidity and
Capital Resources - Nuclear Generation - Fuel Disposal" in Item 7 for
information concerning proceedings brought by Con Edison and a number of other
utilities against the United States Department of Energy. The proceedings are
entitled Northern States Power Co., et al. v. Department of Energy, et al.

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

None.


<PAGE>
 
                                      -24-


EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information about the executive officers
of CEI and Con Edison, as of March 1, 1999. Unless otherwise indicated, all
positions and offices listed are at Con Edison. 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 subject to
removal at any time by the board of directors (trustees) of their company.

<TABLE>
<CAPTION>
Name                         Age                   Offices and Positions During Past Five Years                             
<S>                          <C>                   <C>                                                                      
Eugene R. McGrath            57                    10/97 to present - Chairman, President, Chief Executive Officer          
                                                     and Director of CEI                                                    
                                                   3/98 to present - Chairman, Chief Executive Officer and                  
                                                     Trustee of Con Edison                                                    
                                                   9/90 to 2/98 - Chairman, President, Chief Executive Officer and          
                                                   Trustee of Con Edison                                                    
                                                                                                                            
J. Michael Evans             53                    3/98 to present, President and Chief Operating Officer                   
                                                   7/95 to 2/98 - Executive Vice President - Customer Service               
                                                   4/95 to 6/95 - Executive Vice President                                  
                                                   9/91 to 3/95 - Executive Vice President - Central Operations             
                                                                                                                            
Joan S. Freilich             57                    3/98 to present - Executive Vice President, Chief Financial              
                                                   Officer and Director (Trustee) of CEI and Con Edison                     
                                                   10/97 to 2/98 - Senior Vice President, Chief Financial Officer 
                                                     and Director of CEI
                                                   4/97 to 2/98 - Senior Vice President, Chief Financial Officer and Trustee
                                                   7/96 to 3/97 - Senior Vice President and Chief Financial Officer         
                                                   9/94 to 7/96 - Vice President, Controller and Chief Accounting           
                                                     Officer                                                                  
                                                   7/92 to 8/94 - Vice President and Controller                             
                                                                                                                            
Charles F. Soutar            62                    7/95 to present - Executive Vice President - Central Services            
                                                   2/89 to 6/95 - Executive Vice President - Customer Service               
                                                                                                                            
Stephen B. Bram              56                    4/95 to present - Senior Vice President - Central Operations             
                                                   12/94 to 3/95 - Senior Vice President                                    
                                                   9/94 to 11/94 - Vice President                                           
                                                   12/87 to 8/94 - Vice President - Nuclear Power                           
                                                                                                                            
Kevin Burke                  48                    7/98 to present - Senior Vice President - Customer Service               
                                                   3/98 to 6/98 - Senior Vice President - Corporate Planning                
                                                   3/93 to 2/98 - Vice President - Corporate Planning                       
</TABLE>


<PAGE>
 
                                      -25-


<TABLE>
<CAPTION>
Name                         Age                   Offices and Positions During Past Five Years                             
<S>                          <C>                   <C>                                                                      
Neil S. Carns                59                    6/98 to present - Senior Vice President - Nuclear Operations             
                                                   2/97 to 1/98 - Chief Nuclear Officer, Northeast Utilities                
                                                   7/93 - 1/97 - Chairman & CEO - Wolf Creek Nuclear Operating               
                                                     Corp.                                                                    
                                                   
Mary Jane McCartney          50                    10/93 to present - Senior Vice President - Gas                           
                                                                                                                            
John D. McMahon              47                    8/98 to present - Senior Vice President and General Counsel              
                                                   of CEI and Con Edison                                                    
                                                   10/97 to 8/98 - Deputy General Counsel, Corporate &                      
                                                     Regulatory                                                     
                                                   2/96 to 10/97 - Associate General Counsel, Utility                       
                                                     Affairs                                                                  
                                                   4/89 to 1/96 - Assistant General Counsel                                 
                                                                                                                            
Horace S. Webb               58                    2/99 to present - Senior Vice President and Executive                    
                                                     Assistant to the Chairman
                                                   9/92 to 2/99 - Senior Vice President - Public Affairs                    
                                                                                                                            
Archie M. Bankston           61                    12/97 to present - Secretary of CEI                                      
                                                   6/89 to present - Secretary and Associate General Counsel                
                                                                                                                            
James P. O'Brien             51                    3/99 to present - Vice President and General Auditor
                                                   1/98 to 2/99 - General Auditor                                        
                                                   3/94 to 12/97 - Vice President - Information Resources                   
                                                   6/89 to 3/94 - Assistant Vice President - Employee Relations             
                                                                                                                            
Hyman Schoenblum             50                    12/97 to present - Vice President and Controller of CEI                  
                                                   10/97 to present - Vice President and Controller                         
                                                   3/97 to 9/97 - Vice President and Treasurer                              
                                                   6/96 to 2/97 - Director - Financial Restructuring                        
                                                   11/93 to 5/96 - Director - Corporate Planning                            
                                                                                                                            
Robert P. Stelben            56                    12/97 to present - Vice President and Treasurer of CEI                   
                                                   10/97 to present - Vice President and Treasurer                          
                                                   8/97 to 9/97 - Vice President - Finance                                  
                                                   11/95 to 8/97 - Vice President and Treasurer, Johnson & Higgins          
                                                   8/94 to 11/95 - Vice President and Treasurer, BTR Americas               
                                                   9/85 to 6/94 - Vice President and Treasurer, Marsh & McLennan            
                                                                                                                            
A. Alan Blind                45                    6/98 to present - Vice President - Nuclear                               
                                                   1/98 to 5/98 - Vice President, Nuclear Engineering                       
                                                     - American Electric Power                                                
                                                   5/94 to 1/98 - Site Vice President, American Electric Power              
                                                   9/89 to 5/94 - Plant Manager, American Electric Power                    
</TABLE>


<PAGE>
 
                                      -26-


<TABLE>
<CAPTION>
Name                         Age                   Offices and Positions During Past Five Years                             
<S>                          <C>                   <C>                                                                      
James S. Baumstark           56                    7/98 to present - Vice President - Nuclear                               
                                                   1/98 to 7/98 - Engineering Director, Crystal River Nuclear               
                                                     Plant, Florida Power Corp.                                               
                                                   6/96 to 12/97 - Quality Programs Director, Crystal River Nuclear         
                                                     Plant, Florida Power Corp.                                               
                                                   6/94 to 5/96 - Plant Manager, Sequoyah Nuclear Plant,                    
                                                     Tennessee Valley Authority                                               
                                                                                                                            
Marilyn Caselli              44                    8/98 to present - Vice President - Customer Operations                   
                                                   10/97 to 7/98 - Vice President - Staten Island Customer Service          
                                                   5/96 to 9/97 - General Manager - Queens                                  
                                                   3/96 to 4/96 - General Manager - Gas Operations                          
                                                   2/93 to 2/96 - General Manager - Brooklyn Administration                 
                                                                                                                            
V. Richard Conforti          60                    8/96 to present - Vice President - Transportation & Stores               
                                                   7/92 to 7/96 - Assistant Vice President - Gas Operations                 
                                                                                                                            
Richard P. Cowie             52                    3/94 to present - Vice President - Employee Relations                    
                                                                                                                            
Robert F. Crane              62                    1/97 to present - Vice President - Gas Operations                        
                                                   3/94 to 12/96 - Vice President - Fuel Supply                             
                                                                                                                            
Robert W. Donohue, Jr.       56                    1/98 to present - Vice President - Brooklyn & Queens Customer            
                                                     Service                                                                  
                                                   2/94 to 12/97 - Vice President - Queens Customer Service                 
                                                                                                                            
David F. Gedris              50                    10/97 to present - Vice President - Fossil Power                         
                                                   2/96 to 9/97 - Vice President - Westchester Customer Service             
                                                   2/94 to 1/96 - Vice President - Maintenance and Construction             
                                                                                                                            
William A. Harkins           53                    2/97 to present - Vice President - Energy Management                     
                                                   2/89 to 2/97 - Vice President - Planning and Inter-Utility Affairs       
                                                                                                                            
Paul H. Kinkel               54                    9/98 to present - Vice President - Northern Region                       
                                                   1/98 to 9/98 - Vice President - Nuclear Power                            
                                                   2/96 to 12/97 - Vice President - Maintenance and Construction            
                                                   12/93 to 2/96 - Vice President - Engineering                             
                                                                                                                            
M. Peter Lanahan, Jr.        55                    8/96 to present - Vice President - Environment, Health & Safety          
                                                   5/95 to 8/96 - Vice President - Environmental Affairs                    
                                                   1/91 to 4/95 - Manager , General Electric Company                        
                                                                                                                            
Richard J. Morgan            63                    12/96 to present - Vice President - Steam Operations                     
                                                   7/92 to 11/96 - Assistant Vice President - Steam Operations              
</TABLE>


<PAGE>
 
                                      -27-


<TABLE>
<CAPTION>
Name                         Age                   Offices and Positions During Past Five Years                             
<S>                          <C>                   <C>                                                                      
John A. Nutant               63                    2/94 to present - Vice President - Manhattan Customer Service            
                                                   7/92 to 1/94 - Vice President - Queens Customer Service                  
                                                                                                                            
Stephen E. Quinn             52                    1/98 to present - Vice President - Maintenance and Construction          
                                                   9/94 to 12/97 - Vice President - Nuclear Power                           
                                                                                                                            
Louis Rana                   50                    3/98 to present - Vice President - System & Transmission                 
                                                     Operations                                                             
                                                   10/97 to 2/98 - General Manager - System Operation                       
                                                   8/97 to 9/97 - General Manager - Manhattan Electric Operations           
                                                   1/94 to 7/97 - Chief Distribution Engineer                               
                                                                                                                            
Edwin W. Scott               60                    6/89 to present - Vice President and Deputy General Counsel              
                                                                                                                            
Wanda Skalba                 49                    1/98 to present- Vice President - Information Resources                  
                                                   4/96 to 12/97 - Director - Information Resources                         
                                                   4/93 to 4/96 - Director - Application Services                           
                                                                                                                            
Minto L. Soares              62                    1/98 to present - Vice President - Substation Operations                 
                                                   6/91 to 12/97 - Vice President - Bronx Customer Service                  
                                                                                                                            
Saddie L. Smith              46                    8/98 to present - Vice President - Staten Island Customer                
                                                     Service                                                                
                                                   7/97 to 7/98 - Director - Facilities and Office Services                 
                                                   7/95 to 7/97 - Director - Equal Employment Opportunity Affairs           
                                                   12/91 to 7/95-   Senior Attorney - Labor Relations
                                                                                                                            
Luther Tai                   50                    7/98 to present - Vice President - Corporate Planning                    
                                                   7/94 to 6/98 -  Director - Corporate Planning              
                                                   1/91 to 6/94 - Chief Forecast Engineer                                   
                                                                                                                            
Alfred R. Wassler            54                    8/96 to present - Vice President - Purchasing                            
                                                   3/94 to 8/96 - Vice President - Purchasing, Transportation               
                                                     and Stores                                                             
</TABLE>


<PAGE>
 
                                      -28-


                                     PART II

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

      CEI's Common Shares ($.10 par value), the only class of common equity of
CEI, are traded on the New York Stock Exchange. As of January 31, 1999, there
were 124,900 holders of record of CEI's Common Shares. For information about
CEI's stock repurchase program, see " Liquidity and Capital Resources" in Item
7. The outstanding shares of Con Edison's Common Stock ($2.50 par value), the
only class of common equity of Con Edison, are held by CEI and are not traded.

MARKET PRICE RANGE IN CONSOLIDATED REPORTING SYSTEM AND DIVIDENDS ON COMMON
STOCK

      The following table shows the market price range of, and dividends paid
on, CEI's Common Shares in 1998 and on Con Edison's Common Stock in 1997. CEI
became the holding company for Con Edison on January 1, 1998.

<TABLE>
<CAPTION>
                                1998                                  1997
                                          Dividends                                  Dividends
                   High        Low           Paid         High        Low              Paid
----------------------------------------------------------------------------------------------
<S>              <C>         <C>            <C>          <C>          <C>            <C>    
1st Quarter      $47-7/8     $39-1/16       $   .53      $32-1/8      $28-1/2        $  .525
2nd Quarter       47-1/8      41-1/8            .53      30-3/4        27               .525
3rd Quarter       52-1/4      42                .53      34-9/16       29-5/16          .525
4th Quarter       56-1/8      48-1/2            .53      41-1/2        32-1/4           .525
</TABLE>

      On January 26, 1999, CEI's Board of Directors declared a quarterly
dividend of 53.5 cents per Common Share which was paid on March 15, 1999. For
additional information about the payment of dividends by CEI and Con Edison, see
"Dividends" in Note B to the financial statements in Item 8.

ITEM 6. SELECTED FINANCIAL DATA

      The following table shows selected financial data for CEI and Con Edison.
CEI became the holding company for Con Edison on January 1, 1998.

<TABLE>
<CAPTION>
                                                                                        CEI and Con Edison
                                        CEI         Con Edison        ----------------------------------------------------
Year Ended December 31                 1998            1998           1997            1996            1995            1994
--------------------------------------------------------------------------------------------------------------------------
(Millions of Dollars)
<S>                              <C>             <C>            <C>             <C>             <C>             <C>       
Operating revenues               $  7,093.0      $  6,998.7     $  7,196.2      $  7,133.1      $  6,620.0      $  6,444.5
Purchased power                     1,253.8         1,252.0        1,349.6         1,272.9         1,107.2           787.5
Fuel                                  579.0           579.0          596.8           573.3           504.1           567.8
Gas purchased for resale              437.3           370.1          552.6           590.4           342.0           411.5
Operating income                    1,053.3         1,067.1        1,035.3         1,012.5         1,040.6         1,036.0
Net income for common stock           712.7           728.1          694.5           688.2           688.3           698.7

Total assets                       14,381.4        14,172.8       14,722.5        14,057.2        13,949.9        13,728.4
Long-term debt                      4,050.1         4,050.1        4,188.9         4,238.6         3,917.2         4,030.5
 Preferred stock subject to
   mandatory redemption                37.1            37.1           84.6            84.6           100.0           100.0
Common shareholders' equity         6,025.6         5,842.7        5,930.1         5,727.6         5,522.7         5,313.0

Basic and diluted earnings
   per common share              $     3.04               *     $     2.95      $     2.93      $     2.93      $     2.98
Cash dividends per
 common share                    $     2.12               *     $     2.10      $     2.08      $     2.04      $     2.00

Average common shares
outstanding (millions)                234.3               *          235.1           235.0           234.9           234.8
</TABLE>

----------
* CEI owns all of Con Edison's shares of outstanding common stock.

<PAGE>
                                      -29-

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis 
of Financial Condition and Results of Operations

Consolidated Edison, Inc. (CEI) was established as the holding company for
Consolidated Edison Company of New York, Inc. (Con Edison) on January 1, 1998.
The following discussion and analysis relates to the accompanying consolidated
financial statements and the notes thereto and should be read in conjunction
with the financial statements and notes. The consolidated financial statements
of CEI include the accounts of CEI and all of CEI's consolidated subsidiaries,
including Con Edison. The consolidated financial statements of Con Edison
include the accounts of Con Edison and all of its consolidated subsidiaries.

Liquidity and Capital Resources

Sources of Liquidity

Cash and temporary cash investments were $102.3 million for CEI (including $30.0
million for Con Edison) at December 31, 1998 compared with $183.5 million for
CEI (and Con Edison) at December 31, 1997. These balances reflect, among other
things, the timing and amounts of external financing.

CEI expects to finance its operations, capital requirements and the payment of
dividends to its shareholders primarily from dividends and other distributions
it receives from Con Edison and, following completion of its acquisition by CEI,
Orange and Rockland Utilities, Inc. See "Acquisition," below. CEI may also
from time to time use external borrowings. For information about restrictions on
the payment of dividends by Con Edison, see Note B to the financial statements.

Con Edison expects to finance its operations and capital requirements from
internally-generated funds and external borrowings. Con Edison's cash
requirements are subject to substantial fluctuations during the year due to
seasonal variations in cash flow and generally peak in January and July of each
year when the semi-annual payments of New York City property taxes are due.

Customer accounts receivable, less allowance for uncollectible accounts,
decreased at year-end 1998 compared with year-end 1997 primarily because of
lower sales revenue as a result of warmer weather in the month of December 1998
as compared with December 1997. At December 31, 1998 and 1997, Con Edison's
equivalent number of days of revenue outstanding as customer accounts receivable
(ENDRO) was 29.0 and 28.2 days, respectively. The increase in ENDRO reflects
primarily different numbers of billing and collection days in each cycle.

CEI's investments - other amounted to $113.4 million and $80.7 million at
December 31, 1998 and 1997, respectively, reflecting investments by Con Edison
Development. Con Edison's investments - other decreased in 1998, reflecting the
corporate restructuring in which CEI became the holding company for Con Edison
and its non-utility subsidiaries.

Recoverable fuel costs amounted to $22.0 million and $98.3 million at December
31, 1998 and 1997, respectively. The decrease reflects lower unit costs of
purchased electric power and gas purchased for resale in 1998 as compared with
1997.

CEI's net cash flows from operating activities for years 1996 through 1998 were
as follows:

(Millions of Dollars)                           1998          1997          1996
--------------------------------------------------------------------------------
Net cash flows from
  operating activities                        $1,366        $1,220        $1,085
Less: Dividends on
  common stock                                   493           493           489
--------------------------------------------------------------------------------
Net after dividends                           $  873        $  727        $  596
--------------------------------------------------------------------------------

Net cash flows in 1998 were higher than in 1997 due principally to higher
electric sales revenue from warmer than normal summer weather and an improving
New York City economy. Net cash flows in 1997 were higher than in 1996 due
principally to reduced operations and maintenance expenses and to the reduction
in regulatory accounts receivable.

Financial Ratios CEI's common equity and interest coverage ratios continue to be
high compared with the electric utility industry generally, an indication of
continued financial strength.

CEI's common equity ratio was 58.4 percent and 56.8 percent at year-end 1998 and
1997, respectively. CEI's interest coverage was 4.29 and 4.09 times for 1998 and
1997, respectively. The increase in interest coverage reflects higher pre-tax
income and lower interest charges as a result of debt refundings. See
"Refundings" and "Stock Repurchase," below.

Debt Financings Con Edison initiated a $500 million commercial paper program in
January 1998. The highest amount outstanding at any one time during 1998 was
$269 million. There was no commercial paper outstanding at December 31, 1998. In
February 1999 CEI entered into revolving credit agreements with banks, which it
intends to use to support a $350 million commercial paper program. CEI's and Con
Edison's commercial paper are rated P-1, A-1 and F1 by Moody's Investor Service
(Moody's), Standard and Poor's Rating Group (S&P) and Fitch IBCA (Fitch),
respectively. See Note C to the financial statements.


<PAGE>
                                       -30-

Con Edison issued $150 million of five-year floating rate debentures in June
1997, the interest rate on which is reset quarterly. Con Edison's senior
unsecured debt securities (debentures and tax-exempt debt) are rated A1, A+ and
AA- by Moody's, S&P and Fitch, respectively. Con Edison's subordinated
debentures (QUICS) are rated A2 by Moody's, A by S&P and A+ by Fitch.

Refundings The New York State Public Service Commission (PSC) has authorized Con
Edison to issue securities for the refunding of its outstanding debt and
preferred stock from time to time prior to the year 2003. Refundings may be
effected by means of any one or a combination of redemption calls, tender
offers, exchange offers, negotiated transactions or open market purchases.

In 1998 Con Edison issued $385 million of debentures with interest rates ranging
from 6.15 to 7.10 percent to refund debentures and tax-exempt debt with interest
rates ranging from 7-1/8 to 8.05 percent. In December 1997 Con Edison issued
$330 million of 10-year 6.45 percent debentures to refund in January 1998
tax-exempt debt with interest rates ranging from 7-1/2 to 9-1/4 percent.

In addition, in 1998 Con Edison issued $75 million of 30-year 6.90 percent
debentures to redeem three series of preferred stock. In 1997 Con Edison used
cash balances to redeem its outstanding convertible preference stock.

Stock Repurchase To realign its capital structure with its evolving business
risk (see "CEI's Business," below), in May 1998 CEI commenced a repurchase
program for up to $1 billion of its common stock, subject to market conditions.
In 1998, as part of this program, Con Edison used internally-generated funds to
purchase 2.65 million CEI shares at an average price of $45.50 per share and a
total cost of $120.8 million. CEI expects to continue the repurchase program
using funds generated internally by Con Edison, net proceeds of generating plant
sales and external borrowings. See "PSC Settlement Agreement - Generation
Divestiture," below.

In May 1999 options issued under CEI's 1996 Stock Option Plan will first become
exercisable. See Note H to the financial statements. Shares of CEI common stock
to be issued upon the exercise of options will be purchased on the market or
will be newly issued shares, as CEI may determine from time to time.

Acquisition

In May 1998 CEI agreed to acquire Orange and Rockland Utilities, Inc. (O&R) for
cash at a price of $58.50 per share of O&R common stock (approximately $790
million in aggregate) pursuant to an Agreement and Plan of Merger among the
parties. Following completion of the transaction, O&R will be a wholly-owned
subsidiary of CEI. The transaction is subject to certain conditions, including
the approvals of the New York, New Jersey and Pennsylvania utility regulators,
and the Securities and Exchange Commission, petitions for which have been filed.
The transaction has been approved by the Federal Energy Regulatory Commission
(FERC) and by O&R's shareholders and is not subject to the approval of CEI's
shareholders. CEI plans to fund the acquisition, which is expected to be
completed by the second quarter of 1999, with net proceeds of generating plant
sales, using short-term financing as necessary until the proceeds are available.

Capital Requirements

The following table presents Con Edison's capital requirements for the years
1996 through 1998 and estimated amounts for 1999 and 2000:

(Millions of Dollars)               2000      1999      1998      1997      1996
--------------------------------------------------      ------------------------
Construction
  expenditures                      $599      $611      $619      $654      $675
Nuclear
  decommissioning
  trust funds                         21        21        21        21        21
Nuclear fuel                          33        22         7        15        49
Retirement of
  long-term debt and
  preferred stock (a)                275       226       200       106       184
--------------------------------------------------      ------------------------
Total                               $928      $880      $847      $796      $929
--------------------------------------------------------------------------------
(a)   Does not include stock repurchases or debt refundings. See "Refundings"
      and "Stock Repurchase," above. For details of securities maturing after
      2000, see Note B to the financial statements.

CEI expects to invest $210 million in 1999 and $112 million in 2000 in its
non-utility subsidiaries, including Con Edison Solutions, Con Edison Development
and Con Edison Energy. CEI's investment in these subsidiaries was $130.0 million
at December 31, 1998.

CEI's Business

Federal and state initiatives have resulted in a fundamental restructuring of
the utility business by promoting the development of competition in the sale of
electricity and gas. These initiatives "unbundle," or separate, the integrated
supply and delivery services that utilities have traditionally provided, and
enable customers to purchase electric and gas supply from others for delivery by
the utilities over their electric and gas systems.

In light of these initiatives, CEI intends to concentrate primarily on its core
energy distribution business. Con Edison's programs to carry out this strategy
include: divestiture of its fossil-fueled electric generation facilities;
participation in the formation of an independent system operator (ISO); and
establishment of electric and gas Retail Choice programs, which allow customers
to select alternative energy suppliers. See "Open Access and the Independent
System Operator," "PSC Settlement Agreement" and "Gas and Steam Rate
Agreements," below. The proposed acquisition of O&R, which is also divesting its
generation assets, is an important step towards achieving CEI's long-term
strategic 



<PAGE>
                                       -31-

objectives. See "Acquisition," above. In addition, CEI's non-utility
subsidiaries are participating in new unregulated energy supply and services
businesses. These new businesses are subject to competition and different
investment risks than those involved in Con Edison's utility business.

Open Access and the Independent System Operator 

In 1996 FERC issued its Order 888 requiring electric utilities to make their
transmission facilities available to wholesale sellers and buyers of electric
energy and allow utilities to recover related legitimate and verifiable stranded
costs subject to FERC's jurisdiction.

FERC has conditionally authorized the establishment of an ISO that would control
and operate electric transmission facilities in New York as an integrated system
and a New York State Reliability Council that would promulgate reliability
rules. Con Edison would continue to own, but not control, its transmission
facilities and would receive fees for use of the facilities. The New York ISO is
expected to commence operations later this year.

PSC Settlement Agreement

In May 1996 the PSC issued an order in its Competitive Opportunities proceeding
endorsing a fundamental restructuring of the electric utility industry in New
York State, based upon competition in the generation and energy services sectors
of the industry. In September 1997 the PSC approved a settlement agreement
between Con Edison, the PSC staff and certain other parties (the Settlement
Agreement). The Settlement Agreement provided for a transition to a competitive
electric market, which Con Edison is fostering by establishing its Retail Choice
program for electricity and divesting all of its fossil-fueled electric
generation facilities. The Settlement Agreement also provides a rate plan for
the period ending March 31, 2002 (the Transition) and a reasonable opportunity
for recovery of "strandable costs."

Retail Choice In 1998 Con Edison initiated its electric Retail Choice program -
an energy and capacity retail access program that permits customers to choose
alternative energy suppliers. The delivery of electricity to customers continues
to be through Con Edison's transmission and distribution systems. The program
began in June 1998 with approximately 68,000 customers and 1,000 megawatts (MW)
of customer load, and Con Edison expects to expand it by a like amount in April
1999. Con Edison will target the phase-in of retail access to make it available
to all of its customers by the earlier of 18 months after the New York ISO
becomes fully operational or December 31, 2001. This schedule is subject to
adjustment as circumstances warrant. In general, Con Edison's delivery rates for
retail access customers during the Transition will equal the rates applicable to
other comparable Con Edison customers, less a rate representing the market value
of the energy and capacity.

Generation Divestiture The Settlement Agreement provided for the divestiture to
third parties of at least 50 percent of Con Edison's New York City fossil-fueled
electric generating capacity. It also provided that Con Edison can retain for
shareholders the first $50 million of any net after-tax gains from the
divestiture. In July 1998 the PSC issued an order amending the Settlement
Agreement (the Divestiture Order). The Divestiture Order requires Con Edison to
auction all of its New York City fossil-fueled electric generating capacity to
unaffiliated third parties. The order permits Con Edison to apply up to $50
million of any net after-tax gains from the divestiture, in excess of the first
$50 million of net gains, to reduce the net book value of the Indian Point 2
nuclear generating unit (IP 2). Any net gains or any net losses from divestiture
in excess of $100 million will be deferred for disposition by the PSC. Sales of
electric generating capacity are subject to PSC approval and contingent on the
New York ISO being operational, unless otherwise determined by the PSC.

In January and March 1999 Con Edison entered into agreements to sell 5,479 MW of
its electric capacity to unaffiliated third parties for approximately $1.65
billion. In November 1998 Con Edison entered into an agreement to sell its
two-thirds interest in the 1,200-MW Bowline Point generating station operated by
O&R to an unaffiliated third party for approximately $133 million. The estimated
net after-tax gain from these sales is approximately $384 million.

Rate Plan In 1998 Con Edison implemented an annualized rate reduction of $129
million pursuant to the rate plan provisions of the Settlement Agreement. An
additional annualized rate reduction of $80 million will take effect in April
1999. Additional rate decreases will be implemented during the Transition. The
rate plan reduces by approximately $1 billion the total generation-related
revenues that Con Edison would have received over the five-year Transition
period had March 31, 1997 rate levels remained in effect. Financing savings from
any securitization of strandable costs, in excess of the amount of the savings
that may be otherwise allocated by the PSC, will be utilized for additional rate
reductions. In general, base electric rates will not otherwise be changed during
the Transition except in the event of changes in costs above anticipated annual
levels resulting from legal or regulatory requirements (including a requirement
or interpretation resulting in Con Edison's refunding its tax-exempt debt),
inflation in excess of a four percent annual rate, property tax increases and
environmental costs above pre-determined levels, or in the event Con Edison's
rate of return becomes unreasonable for the provision of safe and adequate
service. Con Edison has deferred approximately $15 million of property tax
increases as of December 1998 for recovery pursuant to the Settlement Agreement.
The Settlement Agreement includes a penalty mechanism (estimated maximum, $26
million per year) for failure to maintain certain service quality and
reliability standards. No such penalty was incurred in 1998.


<PAGE>
                                       -32-

The Settlement Agreement also provides that for any rate year during the
Transition, 50 percent of earnings, exclusive of incentives, in excess of a rate
of return of 12.9 percent on electric common equity will be retained for
shareholders and 50 percent will be deferred and applied for customer benefit.
The earnings sharing is to cease beginning in the year in which Con Edison
divests at least half of its New York City electric generation facilities or in
which 15 percent of the service area peak load [excluding the existing load
served by the New York Power Authority (NYPA)] is supplied by entities other
than Con Edison. No amounts were deferred for earnings sharing in 1998. The
conditions for ending application of the sharing provision are expected to be
met in 1999.

Recovery of Prior Investments and Commitments   Potential strandable costs for 
Con Edison include costs associated with its fossil-fueled generating plants, IP
2, decommissioning of IP 2 and the retired IP 1 and contracts with non-utility
generators (NUGs).

Under the Settlement Agreement, Con Edison will continue to recover its
potential electric strandable costs during the Transition in the rates it
charges all customers. Pursuant to the Settlement Agreement, Con Edison will be
given a reasonable opportunity following the Transition to recover remaining
electric strandable costs, as adjusted for net gains in excess of $100 million
or net losses from divestiture of Con Edison's electric generating capacity (see
"Generation Divestiture," above), including a reasonable return on investments,
through a non-bypassable charge to customers. For any remaining strandable costs
related to fossil generation, the recovery period will be 10 years and for
strandable costs related to nuclear generation, the recovery period will be the
remaining operating license term of IP 2, which extends to 2013. In addition,
the Settlement Agreement provides $75 million of additional depreciation for Con
Edison's generating units that supply both electricity and steam.

For information about recovery of potential strandable costs relating to Con
Edison's NUG contracts, see Note G to the financial statements.

Corporate Structure The Settlement Agreement establishes guidelines governing
transactions among affiliates. Without PSC approval, Con Edison is prohibited
from making loans to, or guaranteeing the obligations of, CEI or any of CEI's
subsidiaries, or pledging its assets as security for the indebtedness of CEI or
any of its affiliates. See Note B to the financial statements. Con Edison and
the other subsidiaries must operate as separate entities, and transfers of
assets, services and information between Con Edison and its affiliates are
subject to certain restrictions.

1995 Electric Rate Agreement

In April 1995 the PSC approved a three-year electric rate agreement effective
April 1, 1995. However, the Settlement Agreement superseded the provisions of
the 1995 electric rate agreement that prescribed overall electric revenue levels
for the 12 months ended March 31, 1998. The Settlement Agreement also
eliminated, effective April 1, 1997, the provisions of the 1995 electric rate
agreement for incentives or penalties related to the Enlightened Energy program
and customer service performance, the modified Electric Revenue Adjustment
Mechanism (ERAM) and earnings sharing.

The principal features of the 1995 electric rate agreement were as follows:

Limited Changes In Base Revenues There was no increase in base electric revenues
for the first rate year (the 12 months ended March 31, 1996) and rates were
reduced by approximately $19 million (0.3 percent) for the second rate year (the
12 months ended March 31, 1997).

Earnings Sharing The allowed rates of return on common equity in the first two
rate years were 11.1 percent and 10.31 percent, respectively, based on an
assumed 52 percent common equity ratio. Primarily as a result of increased
productivity, Con Edison's actual rates of return for the first two rate years
exceeded a threshold level established for sharing earnings with customers. As a
result, Con Edison recorded provisions, before federal income tax, for the
future benefit of electric customers of $10.2 million for the first rate year
(primarily in the fourth quarter of 1995) and $25.7 million for the second rate
year ($18.0 million in 1996 and $7.7 million in 1997).

Incentive Provisions Con Edison was permitted to earn additional incentive
amounts, not subject to the earnings sharing provisions, by attaining certain
objectives for its Enlightened Energy program and for customer service. There
were also penalties for failing to achieve minimum objectives, and there was a
penalty-only mechanism designed to encourage the company to maintain its high
level of service reliability. Con Edison accrued net benefits for these
incentives of $30.3 million in 1996 and $0.5 million in 1997.

Partial Pass-through Fuel Adjustment Clause (PPFAC) The 1995 electric rate
agreement also provided for a fuel and purchased power cost-savings incentive,
which has been continued under the Settlement Agreement. See Note A to the
financial statements. Under the PPFAC, Con Edison's earnings, before federal
income tax, were increased by $24.9 million in 1996 and $7.1 million in 1998.
For 1997, primarily as a result of unscheduled outages at IP 2, Con Edison
incurred a net penalty of $1.8 million.

Modified ERAM The 1995 agreement continued, in modified form, the ERAM
rate-making concept that was established in the 1992 electric rate agreement.
See Note A to the financial statements. Con Edison accrued $10.1 million for
1996 and $18.0 million for 1997 for revenue undercollections under the ERAM
provisions.



<PAGE>
                                       -33-

Electric Capacity Resources

Electric peak load in Con Edison's service area, adjusted for historical design
weather conditions, grew by 250 MW (2.2 percent) in 1998, reflecting growth in
the local economy. Current forecasts of load growth indicate that additional
resources could be required within the service area over the next five years.

In the Divestiture Order, the PSC indicated that it "agree[s] generally that Con
Edison need not plan on constructing new generation as the competitive market
develops," but considers "overly broad" and did not adopt Con Edison'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 does not anticipate adding long-term generation resources to its
electric system but may need to make short-term purchases of capacity.

Nuclear Generation

Indian Point Station Con Edison has operated its approximately 1,000 MW IP 2
nuclear generating unit since it was first placed into service in 1973. At
December 31, 1998 IP 2 had a net book value of approximately $459 million. See
Note A to the financial statements for a discussion of costs of decommissioning
IP 2 and the retired IP 1 unit. IP 2 was out of service for a scheduled
refueling and maintenance outage in 1997 and for significant periods during 1997
and 1998 for unscheduled maintenance. Scheduled refueling and maintenance
outages are generally required after a cycle of approximately 22 months.

Rate Recovery The Settlement Agreement provides that, following the Transition,
Con Edison will have a reasonable opportunity to recover, through a
non-bypassable charge, its investment in IP 2 and the costs of decommissioning
its nuclear operations. See "PSC Settlement Agreement - Recovery of Prior
Investments and Commitments," above.

The Settlement Agreement does not contemplate the divestiture or transfer of IP
2. The PSC has, however, instituted a proceeding to further consider the future
of nuclear generating facilities in New York State.

Fuel Disposal The United States Department of Energy (DOE) has defaulted on its
obligation under a contract with Con Edison pursuant to which DOE, not later
than 1998, was to begin to take title to the company's spent nuclear fuel
generated at IP 2. Con Edison and a number of other utilities are pursuing their
legal remedies against the DOE. Con Edison estimates that it has adequate
on-site capacity for interim storage of its spent fuel until 2005. Absent
regulatory or technological developments by 2005, the company expects that it
will require additional on-site or other spent fuel storage facilities. Such
additional facilities would require regulatory approvals. In the event that it
is unable to make appropriate arrangements for the storage of its spent fuel,
Con Edison would be required to curtail the operation of IP 2.

Gas and Steam Rate Agreements

In January 1997 the PSC approved a four-year gas rate settlement agreement with
the following major provisions: base rates will, with limited exceptions, remain
at September 30, 1996 levels through September 30, 2000; Con Edison will share
in net revenue from interruptible gas sales (previously used only to reduce firm
customer gas costs) by retaining in each rate year the first $7.0 million of net
revenue above 8.5 million dekatherms and 50 percent of additional net revenues;
and 86 percent of any increase in property taxes above levels implicit in rates
will be recovered by offsetting amounts, if any, that would otherwise be
returned to customers. Con Edison will share with customers 50 percent of
earnings above a 13 percent rate of return on gas common equity. No amounts were
deferred for earnings sharing in 1998 and 1997.

Con Edison's Retail Choice program for gas permits all of its customers to
choose alternative gas suppliers. The delivery of gas to customers continues to
be through Con Edison's distribution system. The program began in 1996. See
discussion of transportation of customer-owned gas in Results of Operations,
below.

In September 1997 the PSC approved a three-year steam rate agreement that
provided for a $16 million base rate increase, effective October 1, 1997. Base
rates for the remainder of the term of the agreement will not be increased or
decreased except in certain limited circumstances. In October 1998 the PSC
approved a long-range plan for Con Edison's steam system.

Financial Market Risks

CEI's primary market risks associated with activities in derivative financial
instruments, other financial instruments and derivative commodity instruments,
are interest rate risk and commodity price risk.

The interest rate risk relates primarily to new debt financing needed to fund
capital requirements, including maturing debt securities, and to variable rate
debt. In general, Con Edison's electric, gas and steam rates are not subject to
change for fluctuations in the cost of capital during the respective terms of
the current rate agreements. Con Edison manages its interest rate risk through
the issuance of mostly fixed-rate debt with varying maturities and through
opportunistic refundings of debt through optional redemptions and tender offers.
In addition, from time to time, Con Edison enters into derivative financial
instruments to hedge interest rate risk. There were no derivative financial
instruments outstanding at December 31, 1998.



<PAGE>
                                       -34-

The commodity price risk relates primarily to Con Edison's use of derivative
commodity instruments to hedge its gas in storage and anticipated gas purchases.
In addition, Con Edison Solutions uses derivatives to hedge its gas purchases.
Con Edison does not generally use derivatives to hedge its purchases of
electricity and fuel (to produce electricity and steam) because the related
commodity price risks are mitigated by the fuel adjustment provisions of its
current rate agreements. At December 31, 1998 neither the fair value of the
derivatives outstanding nor potential, near-term derivative losses from
reasonably possible near-term changes in market prices were material to the
financial position, results of operations or liquidity of CEI or Con Edison. See
Note A to the financial statements for additional information about the fuel
cost provisions of the rate agreements and gas cost hedging.

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for fiscal years
beginning after June 15, 1999. The application of this standard is not expected
to have a material effect on the financial position or results of operations of
CEI or Con Edison or materially change their current disclosure practices.

In December 1998 the Financial Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) reached a consensus on Issue No. 98-10, "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities." During
1998 neither CEI, Con Edison nor any of their consolidated subsidiaries entered
into any transactions that would be subject to EITF Issue No. 98-10.

Year 2000 Readiness Disclosure

The "Year 2000 problem" arose because many existing computer programs use only
the last two digits to refer to a year. These computer programs do not properly
recognize a year that begins with "20" instead of the familiar "19." If not
corrected, many computer applications could fail or create erroneous results.
The extent of the potential impact of the Year 2000 problem is not yet known.

In 1995 Con Edison began a program to address its Year 2000 issues. An inventory
and assessment of Con Edison's company-developed systems, vendor-developed
systems, technology infrastructure and telecommunications infrastructure have
been completed. The necessary changes to company-developed systems that are
critical to providing energy service to customers and an inventory and
assessment of the embedded technology in equipment, machinery and operating
systems have been completed. Con Edison plans that any necessary changes to its
other systems, infrastructure and embedded technologies will be completed by
June 1999. The company intends to continue to test its Year 2000 readiness
throughout 1999. Con Edison estimates that the cost of its program to address
Year 2000 issues will be approximately $27 million, of which approximately $22.5
million has been incurred. The cost is being funded from internally-generated
funds and expensed as incurred.

Con Edison is contacting entities, such as energy, services and material
suppliers, that are critical to its ability to provide energy service to its
customers, to determine the Year 2000 readiness of these entities. The company
has sent inquiries regarding Year 2000 readiness to 4,500 suppliers. No third
party has indicated that it has a Year 2000 problem that will have a material
adverse effect on Con Edison's business.

Con Edison expects that its program will be adequate to address its Year 2000
issues, but nevertheless is in the process of developing a contingency plan.
There can, of course, be no assurance as to whether the contingency plan will
successfully address any contingencies that arise. In the event that Con Edison
is unsuccessful in addressing its Year 2000 issues, worst case scenarios could
have a material adverse effect on CEI's and Con Edison's financial condition,
results of operations or liquidity.

Superfund and Asbestos Claims and Other Contingencies

Reference is made to Note F to the financial statements for information
concerning potential liabilities of Con Edison arising from the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund), from claims relating to alleged exposure to asbestos, and from
certain other contingencies to which Con Edison is subject.

Forward-Looking Statements

This discussion and analysis includes forward-looking statements, which are
statements of future expectation and not facts. Words such as estimates,
expects, anticipates, intends, plans and similar expressions identify
forward-looking statements. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as competition and industry restructuring, changes in economic
conditions, changes in historical weather patterns, changes in laws, regulations
or regulatory policies, developments in legal or public policy doctrines,
technological developments, any failure by Con Edison or others to successfully
complete necessary changes to address Year 2000 problems, and other presently
unknown or unforeseen factors.



<PAGE>
                                       -35-

Results of Operations

CEI's basic and diluted earnings per share were $3.04 in 1998, $2.95 in 1997 and
$2.93 in 1996. The average numbers of common shares outstanding for 1998, 1997
and 1996 were 234.3 million, 235.1 million and 235.0 million, respectively.

CEI's net income for common stock of $712.7 million in 1998, $694.5 million in
1997 and $688.2 million in 1996 was comprised primarily of Con Edison's net
income. CEI's net income also reflects net losses of its non-utility
subsidiaries of $18.4 million in 1998, $9.6 million in 1997 and $0.3 million in
1996.

The increase in earnings for the year 1998 was the result of higher electric
revenues from warmer than normal summer weather and the improving New York City
economy, continued cost reduction programs and voluntary attrition in Con
Edison's labor force. These enhancements to earnings were offset, in part, by
expenses resulting from the extended maintenance outage at IP 2 that was
completed in September 1998 and by the implementation of rate reductions
required under the Settlement Agreement. The increase in earnings for the year
1997 was primarily the result of lower operations and maintenance expenses in
non-nuclear operations, reflecting ongoing productivity improvements, partially
offset by the impact of weather on net revenues and reduced incentive earnings
under agreements covering electric rates.

Earnings for 1998, 1997 and 1996 reflect the provisions of the electric, gas and
steam rate agreements discussed in previous sections.

Operating Revenues and Fuel Costs

CEI's operating revenues in 1998 decreased from the prior year by $103.1 million
and in 1997 increased from the prior year by $63.1 million. The principal
increases and decreases in revenues were:

                                                           Increase (Decrease)
-------------------------------------------------------------------------------
                                                            1998           1997
(Millions of Dollars)                                  over 1997      over 1996
-------------------------------------------------------------------------------
Electric, gas and steam rate changes                    $  (93.2)      $  (24.7)
Fuel rider billings*                                      (260.6)         145.0
Sales volume changes
  Electric**                                               258.8           45.0
  Gas                                                     (134.6)          (8.1)
  Steam                                                    (33.6)         (28.9)
Gas weather normalization                                   30.5           17.2
Electric:
  Revenue adjustments                                       43.9           10.5
  Off-system sales                                          20.8          (11.6)
Non-utility                                                 62.1          (98.4)
Other                                                        2.8           17.1
-------------------------------------------------------------------------------
Total                                                   $ (103.1)      $   63.1
-------------------------------------------------------------------------------
*     Excludes costs of fuel, purchased power and gas purchased for resale
      reflected in base rates.

**    Includes Con Edison direct customers and delivery service for NYPA,
      municipal agencies and Retail Choice customers.

The decrease in fuel billings in 1998 reflects reduced fuel expenses resulting
from lower volumes and lower unit costs for purchased electric power (offset in
part by increased generation), gas purchased for resale and fuel used to produce
steam. The increase in such billings in 1997 reflects increases in the unit
costs of purchased power, fuel used to produce electricity and steam, and gas
purchased for resale.

Electricity sales volume in Con Edison's service territory increased 3.1 percent
in 1998 and 1.1 percent in 1997. Gas sales and transportation volume to firm
customers decreased 9.7 percent in 1998 and 6.2 percent in 1997. Under the gas
weather normalization provision of the current gas rate agreement, most
weather-related variations in firm sales do not affect earnings. Firm
transportation and transportation of customer-owned gas (other than for NYPA),
which comprised approximately 19.0 percent of the gas sold or transported for
customers in 1998, increased significantly in 1998, reflecting increased
customer purchases of gas from third party suppliers under Con Edison's Retail
Choice program for gas. Steam sales volume decreased 8.8 percent in 1998 and 8.6
percent in 1997. Gas and steam sales volume decreases reflect warmer than normal
winter weather in 1997 and 1998.

Con Edison's electricity, gas and steam sales vary seasonally in response to
weather. Electric peak load occurs in the summer, while gas and steam sales peak
in the winter. After adjusting for variations, principally weather and billing
days, in each period, electricity sales volume increased 2.5 percent in 1998 and
1.8 percent in 1997. Similarly adjusted, gas sales and transportation volume to
firm customers decreased 0.1 percent in 1998 and 0.8 percent in 1997, and steam
sales volume decreased 1.7 percent in 1998 and 1.0 percent in 1997.
Weather-adjusted sales represent Con Edison's estimate of the sales that would
have been made if historical average weather conditions had prevailed.



<PAGE>
                                       -36-

Other Operations and Maintenance Expenses

Other operations and maintenance expenses increased 2.2 percent in 1998 and
decreased 1.5 percent in 1997. For 1998 the increase reflects expenses for the
IP 2 outage that was completed in September 1998, increased reserves for
workers' compensation and increased start-up expenses for CEI's non-utility
subsidiaries, partially offset by decreased costs for pensions and retiree
benefits (see Notes D and E to the financial statements) and a 4.7 percent
reduction in the workforce. For 1997 the decrease reflects lower costs for
pensions and retiree benefits, a 4.9 percent reduction in the workforce and
reductions in the Enlightened Energy program, partially offset by expenses for
IP 2 outages.

Taxes, Other Than Federal Income Tax

At $1.2 billion, taxes other than federal income tax remain one of CEI's largest
operating expenses.

The principal components of and variations in operating taxes were:

                                                            Increase (Decrease)
-------------------------------------------------------------------------------
                                               1998          1998          1997
(Millions of Dollars)                        Amount     over 1997     over 1996
-------------------------------------------------------------------------------
Property taxes                           $    618.4       $  27.7       $  19.1
State and local taxes
  on revenues                                 465.8          (9.0)          0.9
Payroll taxes                                  56.7          (2.6)         (1.5)
Other taxes                                    67.2          10.9          (3.6)
-------------------------------------------------------------------------------
Total                                    $  1,208.1*      $  27.0       $  14.9
-------------------------------------------------------------------------------
*     Including sales taxes on customers' bills, total taxes, other than federal
      income taxes, billed to customers in 1998 were $1,502.1 million.


The increases in property taxes in 1998 and in 1997 reflect increases in tax
rates.

Other Income

CEI's other income decreased $8.3 million in 1998, due principally to the
write-off of a $10 million investment made by one of CEI's non-utility
subsidiaries. Other income increased $5.5 million in 1997, reflecting primarily
higher investment income.

Net Interest Charges

Net interest charges decreased $7.2 million in 1998, reflecting interest savings
from the refunding of long-term debt issues in 1998. Net interest charges
increased $9.5 million in 1997, principally as a result of new debt issues.

Federal Income Tax

Federal income tax increased in 1998 and decreased in 1997, reflecting the
changes each year in income before tax and in tax credits. See Note I to the
financial statements.


<PAGE>
 
                                      -37-


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      For information about the Company's primary market risks associated with
activities in derivative financial instruments, other financial instruments and
derivative commodity instruments, see "Liquidity and Capital Resources -
Financial Market Risks" in Item 7.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

A. Financial Statements

                                                                           Page
Index to Financial Statements                                             Number

Report of Independent Accountants                                          39

CEI Consolidated Balance Sheet at December 31, 1998 and 1997               40-41
CEI Consolidated Income Statement for the years ended
     December 31,1998, 1997 and 1996                                       42
CEI Consolidated Statement of Retained Earnings for the years ended
    December 31, 1998, 1997 and 1996                                       42
CEI Consolidated Statement of Cash Flows for the years ended
     December 31, 1998, 1997 and 1996                                      43

Con Edison Consolidated Balance Sheet at December 31, 1998 and 1997        44-45
Con Edison Consolidated Income Statement for the years ended
     December 31,1998, 1997 and 1996                                       46
Con Edison Consolidated Statement of Retained Earnings for the years 
    ended December 31, 1998, 1997 and 1996                                 46
Con Edison Consolidated Statement of Cash Flows for the years ended
     December 31, 1998, 1997 and 1996                                      47
Con Edison Consolidated Statement of Capitalization at
    December 31, 1998 and 1997                                             48-49

CEI and Con Edison Notes to Consolidated Financial Statements              50-61

The following Schedules are each filed as a "Financial Statement
Schedule" pursuant to Item 14 of this report:

Schedule I  -  Condensed financial information of CEI                      62-63
Schedule II - Valuation and qualifying accounts of CEI and Con Edison      64

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


<PAGE>
 
                                      -38-


B. Supplementary Financial Information

      Selected Quarterly Financial Data for the years ended December 31, 1998
      and 1997 (Unaudited)

      The following table shows selected quarterly financial data for CEI and
Con Edison. CEI became the holding company for Con Edison on January 1, 1998.

CEI                                   First      Second     Third      Fourth
1998 (Millions of Dollars)            Quarter    Quarter    Quarter    Quarter
--------------------------------------------------------------------------------
Operating revenues                    $ 1,853.1  $ 1,561.0  $ 2,061.6  $ 1,617.3
Operating income                          254.6      148.0      438.4      212.3
Net income for common stock               171.9       62.0      347.0      131.8
Earnings per common share                  $.73       $.26      $1.49       $.56

Con Edison                            First      Second     Third      Fourth
1998 (Millions of Dollars)            Quarter    Quarter    Quarter    Quarter
--------------------------------------------------------------------------------
Operating revenues                    $ 1,825.9  $ 1,543.8  $ 2,042.2  $ 1,586.8
Operating income                          257.9      152.0      442.1      215.1
Net income for common stock               174.0       63.2      356.3      134.6

CEI and Con Edison                    First      Second     Third      Fourth
1997 (Millions of Dollars)            Quarter    Quarter    Quarter    Quarter
--------------------------------------------------------------------------------
Operating revenues                    $ 1,915.6  $ 1,508.1  $ 2,027.3  $ 1,745.2
Operating income                          246.9      126.3      434.8      227.3
Net income for common stock               162.0       43.0      350.4      139.1
Earnings per common share                  $.69       $.18      $1.49       $.59

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


<PAGE>
 
                                      -39-


                        Report of Independent Accountants

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

In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 8.A on page 37, present fairly, in all material
respects, the consolidated financial position of Consolidated Edison, Inc. and
its subsidiaries ("CEI") at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 and the consolidated financial position of
Consolidated Edison Company of New York, Inc. and its subsidiaries ("Con
Edison") at December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of management of CEI and Con
Edison; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable 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 the opinion expressed
above.

PricewaterhouseCoopers LLP
New York, NY

February 23, 1999 except as to Note K, which is as of March 2, 1999


<PAGE>
 
                                      -40-


Consolidated Balance Sheet Consolidated Edison, Inc.

<TABLE>
<CAPTION>
Assets
At December 31 (Thousands of Dollars)                                                                       1998                1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                 <C>        
Utility plant, at original cost (Note A)
Electric                                                                                             $12,039,082         $11,743,745
Gas                                                                                                    1,838,550           1,741,562
Steam                                                                                                    604,761             576,206
General                                                                                                1,204,262           1,203,427
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                                 15,686,655          15,264,940
Less: Accumulated depreciation                                                                         4,726,211           4,392,377
------------------------------------------------------------------------------------------------------------------------------------
Net                                                                                                   10,960,444          10,872,563
Construction work in progress                                                                            347,262             292,218
Nuclear fuel assemblies and components, less accumulated amortization                                     98,837             102,321
------------------------------------------------------------------------------------------------------------------------------------
Net utility plant                                                                                     11,406,543          11,267,102
------------------------------------------------------------------------------------------------------------------------------------

Current assets
Cash and temporary cash investments (Note A)                                                             102,295             183,458
Funds held for refunding of debt                                                                              --             328,874
Accounts receivable - customer, less allowance for uncollectible accounts of
  $24,957 and $21,600 at December 31, 1998 and 1997, respectively                                        521,648             581,163
Other receivables                                                                                         49,381              60,759
Fuel, at average cost                                                                                     33,289              53,697
Gas in storage, at average cost                                                                           49,656              37,209
Materials and supplies, at average cost                                                                  184,916             191,759
Prepayments                                                                                              131,374              75,516
Other current assets                                                                                      20,984              14,775
------------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                   1,093,543           1,527,210
------------------------------------------------------------------------------------------------------------------------------------

Investments
Nuclear decommissioning trust funds                                                                      265,063             211,673
Other                                                                                                    113,382              80,724
------------------------------------------------------------------------------------------------------------------------------------
Total investments (Note A)                                                                               378,445             292,397
------------------------------------------------------------------------------------------------------------------------------------

Deferred charges (Note A)
Enlightened Energy program costs                                                                          68,381             117,807
Unamortized debt expense                                                                                 135,897             126,085
Recoverable fuel costs (Note A)                                                                           22,013              98,301
Power contract termination costs                                                                          70,621              80,978
Other deferred charges                                                                                   254,944             239,559
------------------------------------------------------------------------------------------------------------------------------------
Total deferred charges                                                                                   551,856             662,730
------------------------------------------------------------------------------------------------------------------------------------
Regulatory asset - future federal income taxes (Notes A and I)                                           951,016             973,079
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                                $14,381,403         $14,722,518
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>
                                       -41-

<TABLE>
<CAPTION>
Capitalization and Liabilities
At December 31 (Thousands of Dollars)                                                                      1998                1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                 <C>         
Capitalization (Note B)
Common shareholders' equity
Common stock, $ .10 par value, authorized 500,000,000 shares; 232,833,494 shares
  and 235,489,650 shares outstanding at December 31, 1998 and 1997, respectively                   $  1,482,341        $  1,482,351
Retained earnings                                                                                     4,700,500           4,484,703
Treasury stock, at cost; 1998 - 2,654,600 shares                                                       (120,790)                 --
Capital stock expense                                                                                   (36,446)            (36,975)
------------------------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity                                                                     6,025,605           5,930,079
------------------------------------------------------------------------------------------------------------------------------------

Preferred stock subject to mandatory redemption                                                          37,050              84,550
Other preferred stock                                                                                   212,563             233,468
Long-term debt                                                                                        4,050,108           4,188,906
------------------------------------------------------------------------------------------------------------------------------------
Total capitalization                                                                                 10,325,326          10,437,003
------------------------------------------------------------------------------------------------------------------------------------

Noncurrent liabilities
Obligations under capital leases                                                                         37,295              39,879
Other noncurrent liabilities                                                                            203,543             106,137
------------------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities                                                                            240,838             146,016
------------------------------------------------------------------------------------------------------------------------------------

Current liabilities
Long-term debt due within one year                                                                      225,000             529,385
Accounts payable                                                                                        371,274             440,114
Customer deposits                                                                                       181,236             161,731
Accrued taxes                                                                                            15,670              65,736
Accrued interest                                                                                         76,466              85,613
Accrued wages                                                                                            83,555              82,556
Other current liabilities                                                                               188,186             183,122
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                             1,141,387           1,548,257
------------------------------------------------------------------------------------------------------------------------------------

Deferred credits (Notes A and I)
Accumulated deferred federal income tax                                                               2,392,812           2,307,835
Accumulated deferred investment tax credits                                                             154,970             163,680
Other deferred credits                                                                                  126,070             119,727
------------------------------------------------------------------------------------------------------------------------------------
Total deferred credits                                                                                2,673,852           2,591,242
------------------------------------------------------------------------------------------------------------------------------------
Contingencies (Note F)
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                              $ 14,381,403        $ 14,722,518
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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




<PAGE>
                                       -42-

Consolidated Income Statement Consolidated Edison, Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                          1998                1997                1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                 <C>                 <C>          
Operating revenues (Note A)
Electric                                                                      $   5,674,446       $   5,635,575       $   5,541,117
Gas                                                                                 959,609           1,093,880           1,015,070
Steam                                                                               321,932             391,799             403,549
Non-utility                                                                         137,061              74,898             173,353
------------------------------------------------------------------------------------------------------------------------------------
Total operating revenues                                                          7,093,048           7,196,152           7,133,089
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Purchased power                                                                   1,253,783           1,349,587           1,272,854
Fuel                                                                                579,006             596,824             573,275
Gas purchased for resale                                                            437,308             552,597             590,373
Other operations                                                                  1,157,958           1,124,703           1,165,531
Maintenance                                                                         477,413             474,788             458,815
Depreciation and amortization (Note A)                                              518,514             503,455             496,505
Taxes, other than federal income tax                                              1,208,102           1,181,156           1,166,254
Federal income tax (Notes A and I)                                                  407,639             377,722             396,968
------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                          6,039,723           6,160,832           6,120,575
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                                  1,053,325           1,035,320           1,012,514
------------------------------------------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A)                                                           11,801              12,214               9,074
Allowance for equity funds used during construction (Note A)                          2,431               4,448               3,468
Other income less miscellaneous deductions                                          (14,212)             (4,100)             (8,227)
Federal income tax (Notes A and I)                                                    2,229              (1,998)                778
------------------------------------------------------------------------------------------------------------------------------------
Total other income                                                                    2,249              10,564               5,093
------------------------------------------------------------------------------------------------------------------------------------
Income before interest charges                                                    1,055,574           1,045,884           1,017,607
------------------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt                                                          308,671             318,158             307,820
Other interest                                                                       18,400              17,083              17,331
Allowance for borrowed funds used during construction (Note A)                       (1,246)             (2,180)             (1,629)
------------------------------------------------------------------------------------------------------------------------------------
Net interest charges                                                                325,825             333,061             323,522
------------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements                                               (17,007)            (18,344)            (19,859)
Gain on refunding of preferred stock (Note B)                                            --                  --              13,943
------------------------------------------------------------------------------------------------------------------------------------
Net income for common stock                                                   $     712,742       $     694,479       $     688,169
------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share                                   $        3.04       $        2.95       $        2.93
Average number of shares outstanding                                            234,307,767         235,082,063         234,976,697
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

Consolidated Statement of Retained Earnings Consolidated Edison, Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                               1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>               <C>               <C>       
Balance, January 1                                                                    $4,484,703        $4,283,935        $4,097,035
Add: Preferred stock adjustment                                                               --                --             1,430
Net income for common stock for the year                                                 712,742           694,479           688,169
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                  5,197,445         4,978,414         4,786,634
------------------------------------------------------------------------------------------------------------------------------------
Less: Gain on refunding of preferred stock                                                    --                --            13,943
Dividends declared on common, $2.12, $2.10 and $2.08 per share                           496,945           493,711           488,756
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31                                                                  $4,700,500        $4,484,703        $4,283,935
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



<PAGE>
                                       -43-

Consolidated Statement of Cash Flows Consolidated Edison, Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                              1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>               <C>        
Operating activities
Net income for common stock                                                         $   712,742       $   694,479       $   688,169
Principal non-cash charges (credits) to income
Depreciation and amortization                                                           518,514           503,455           496,505
Deferred recoverable fuel costs                                                          76,288             3,161           (42,008)
Federal income tax deferred                                                              86,430            22,620            40,600
Common equity component of allowance for funds used during construction                  (2,364)           (4,321)           (3,274)
Other non-cash charges                                                                   11,297            17,268             9,602
Changes in assets and liabilities
Accounts receivable - customer, less allowance for uncollectibles                        59,515           (37,159)          (46,789)
Materials and supplies, including fuel and gas in storage                                14,804            31,824           (26,505)
Prepayments, other receivables and other current assets                                 (50,689)           16,062           (46,761)
Enlightened Energy program costs                                                         49,426            15,911            10,564
Power contract termination costs                                                            904            11,551            30,827
Accounts payable                                                                        (68,840)            8,999            10,263
Other - net                                                                             (42,270)          (63,723)          (36,567)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities                                              1,365,757         1,220,127         1,084,626
------------------------------------------------------------------------------------------------------------------------------------
Investing activities including construction
Construction expenditures                                                              (618,844)         (654,221)         (675,233)
Nuclear fuel expenditures                                                                (7,056)          (14,579)          (48,705)
Contributions to nuclear decommissioning trust                                          (21,301)          (21,301)          (21,301)
Common equity component of allowance for funds used during construction                   2,364             4,321             3,274
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities including construction                        (644,837)         (685,780)         (741,965)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Repurchase of common stock                                                             (115,247)               --                --
Issuance of long-term debt                                                              460,000           480,000           525,000
Retirement of long-term debt                                                           (200,000)         (106,256)         (183,524)
Advance refunding of preferred stock and long-term debt                                (773,645)               --          (412,311)
Issuance and refunding costs                                                             (8,864)           (8,930)          (18,480)
Funds held for refunding of debt                                                        328,874          (328,874)               --
Common stock dividends                                                                 (493,201)         (493,711)         (488,756)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities including dividends                           (802,083)         (457,771)         (578,071)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments                          (81,163)           76,576          (235,410)
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at January 1                                        183,458           106,882           342,292
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31                                  $   102,295       $   183,458       $   106,882
------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
  Interest                                                                          $   285,956       $   310,310       $   309,279
  Income taxes                                                                          355,707           335,586           349,192
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



<PAGE>
                                       -44-

Consolidated Balance Sheet Consolidated Edison Company of New York, Inc.

<TABLE>
<CAPTION>
Assets
At December 31 (Thousands of Dollars)                                                                      1998                 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>                  <C>        
Utility plant, at original cost (Note A)
Electric                                                                                            $12,039,082          $11,743,745
Gas                                                                                                   1,838,550            1,741,562
Steam                                                                                                   604,761              576,206
General                                                                                               1,204,262            1,203,427
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                                15,686,655           15,264,940
Less: Accumulated depreciation                                                                        4,726,211            4,392,377
------------------------------------------------------------------------------------------------------------------------------------
Net                                                                                                  10,960,444           10,872,563
Construction work in progress                                                                           347,262              292,218
Nuclear fuel assemblies and components, less accumulated amortization                                    98,837              102,321
------------------------------------------------------------------------------------------------------------------------------------
Net utility plant                                                                                    11,406,543           11,267,102
------------------------------------------------------------------------------------------------------------------------------------

Current assets
Cash and temporary cash investments (Note A)                                                             30,026              183,458
Funds held for refunding of debt                                                                             --              328,874
Accounts receivable - customer, less allowance for uncollectible
  accounts of $22,600 in 1998 and $21,600 in 1997                                                       491,493              581,163
Other receivables                                                                                        45,935               60,759
Fuel, at average cost                                                                                    33,289               53,697
Gas in storage, at average cost                                                                          46,801               37,209
Materials and supplies, at average cost                                                                 184,916              191,759
Prepayments                                                                                             130,198               75,516
Other current assets                                                                                     20,911               14,775
------------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                    983,569            1,527,210
------------------------------------------------------------------------------------------------------------------------------------

Investments
Nuclear decommissioning trust funds                                                                     265,063              211,673
Other                                                                                                    14,750               80,724
------------------------------------------------------------------------------------------------------------------------------------
Total investments (Note A)                                                                              279,813              292,397
------------------------------------------------------------------------------------------------------------------------------------

Deferred charges (Note A)
Enlightened Energy program costs                                                                         68,381              117,807
Unamortized debt expense                                                                                135,897              126,085
Recoverable fuel costs (Note A)                                                                          22,013               98,301
Power contract termination costs                                                                         70,621               80,978
Other deferred charges                                                                                  254,944              239,559
------------------------------------------------------------------------------------------------------------------------------------
Total deferred charges                                                                                  551,856              662,730
------------------------------------------------------------------------------------------------------------------------------------
Regulatory asset - future federal income taxes (Notes A and I)                                          951,016              973,079
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                               $14,172,797          $14,722,518
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>
                                       -45-
<TABLE>
<CAPTION>
Capitalization and Liabilities
At December 31 (Thousands of Dollars)                                                                   1998                    1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                     <C>        
Capitalization (see Statement of Capitalization)
Common shareholders' equity                                                                      $ 5,842,724             $ 5,930,079
Preferred stock subject to mandatory redemption (Note B)                                              37,050                  84,550
Other preferred stock (Note B)                                                                       212,563                 233,468
Long-term debt                                                                                     4,050,108               4,188,906
------------------------------------------------------------------------------------------------------------------------------------
Total capitalization                                                                              10,142,445              10,437,003
------------------------------------------------------------------------------------------------------------------------------------

Noncurrent liabilities
Obligations under capital leases                                                                      37,295                  39,879
Other noncurrent liabilities                                                                         203,543                 106,137
------------------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities                                                                         240,838                 146,016
------------------------------------------------------------------------------------------------------------------------------------

Current liabilities
Long-term debt due within one year (Note B)                                                          225,000                 529,385
Accounts payable                                                                                     357,315                 440,114
Customer deposits                                                                                    181,236                 161,731
Accrued taxes                                                                                         17,621                  65,736
Accrued interest                                                                                      76,507                  85,613
Accrued wages                                                                                         83,555                  82,556
Other current liabilities                                                                            184,989                 183,122
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                          1,126,223               1,548,257
------------------------------------------------------------------------------------------------------------------------------------

Deferred credits (Notes A and I)
Accumulated deferred federal income tax                                                            2,382,273               2,307,835
Accumulated deferred investment tax credits                                                          154,970                 163,680
Other deferred credits                                                                               126,048                 119,727
------------------------------------------------------------------------------------------------------------------------------------
Total deferred credits                                                                             2,663,291               2,591,242
------------------------------------------------------------------------------------------------------------------------------------
Contingencies (Note F)
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                            $14,172,797             $14,722,518
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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




<PAGE>
                                       -46-

Consolidated Income Statement Consolidated Edison Company of New York, Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                            1998               1997               1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>                <C>        
Operating revenues (Note A)
Electric                                                                          $ 5,717,119        $ 5,635,575        $ 5,541,117
Gas                                                                                   959,609          1,093,880          1,015,070
Steam                                                                                 321,932            391,799            403,549
Non-utility                                                                                --             74,898            173,353
------------------------------------------------------------------------------------------------------------------------------------
Total operating revenues                                                            6,998,660          7,196,152          7,133,089
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Purchased power                                                                     1,252,035          1,349,587          1,272,854
Fuel                                                                                  579,006            596,824            573,275
Gas purchased for resale                                                              370,103            552,597            590,373
Other operations                                                                    1,117,785          1,124,703          1,165,531
Maintenance                                                                           477,413            474,788            458,815
Depreciation and amortization (Note A)                                                517,826            503,455            496,505
Taxes, other than federal income tax                                                1,202,610          1,181,156          1,166,254
Federal income tax (Notes A and I)                                                    414,810            377,722            396,968
------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                            5,931,588          6,160,832          6,120,575
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                                    1,067,072          1,035,320          1,012,514
------------------------------------------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A)                                                              6,162             12,214              9,074
Allowance for equity funds used during construction (Note A)                            2,431              4,448              3,468
Other income less miscellaneous deductions                                             (5,275)            (4,100)            (8,227)
Federal income tax (Notes A and I)                                                        575             (1,998)               778
------------------------------------------------------------------------------------------------------------------------------------
Total other income                                                                      3,893             10,564              5,093
------------------------------------------------------------------------------------------------------------------------------------
Income before interest charges                                                      1,070,965          1,045,884          1,017,607
------------------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt                                                            308,671            318,158            307,820
Other interest                                                                         18,400             17,083             17,331
Allowance for borrowed funds used during construction (Note A)                         (1,246)            (2,180)            (1,629)
------------------------------------------------------------------------------------------------------------------------------------
Net interest charges                                                                  325,825            333,061            323,522
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                            745,140            712,823            694,085
Preferred stock dividend requirements                                                 (17,007)           (18,344)           (19,859)
Gain on refunding of preferred stock (Note B)                                              --                 --             13,943
------------------------------------------------------------------------------------------------------------------------------------
Net income for common stock                                                       $   728,133        $   694,479        $   688,169
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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


Consolidated Statement of Retained Earnings Consolidated Edison Company of New
York, Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                          1998                 1997                1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>                 <C>        
Balance, January 1                                                              $ 4,484,703          $ 4,283,935         $ 4,097,035
Corporate restructuring to establish holding company                               (198,362)                  --                  --
Net income for the year                                                             745,140              712,823             694,085
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                             5,031,481            4,996,758           4,791,120
------------------------------------------------------------------------------------------------------------------------------------
Dividends declared on capital stock
Cumulative Preferred, at required annual rates                                       17,007               18,146              18,145
Cumulative Preference, 6% Convertible Series B                                           --                  198                 284
Common                                                                              496,945              493,711             488,756
------------------------------------------------------------------------------------------------------------------------------------
Total dividends declared                                                            513,952              512,055             507,185
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31                                                            $ 4,517,529          $ 4,484,703         $ 4,283,935
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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




<PAGE>
                                       -47-

Consolidated Statement of Cash Flows Consolidated Edison Company of New York, 
Inc.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                              1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>               <C>        
Operating activities
Net income                                                                          $   745,140       $   712,823       $   694,085
Principal non-cash charges (credits) to income
Depreciation and amortization                                                           517,826           503,455           496,505
Deferred recoverable fuel costs                                                          76,288             3,161           (42,008)
Federal income tax deferred                                                              86,430            22,620            40,600
Common equity component of allowance for funds used during construction                  (2,364)           (4,321)           (3,274)
Other non-cash charges                                                                   11,297            17,268             9,602
Changes in assets and liabilities
Accounts receivable - customer, less allowance for uncollectibles                        66,746           (37,159)          (46,789)
Materials and supplies, including fuel and gas in storage                                17,659            31,824           (26,505)
Prepayments, other receivables and other current assets                                 (52,303)           16,062           (46,761)
Enlightened Energy program costs                                                         49,426            15,911            10,564
Power contract termination costs                                                            904            11,551            30,827
Accounts payable                                                                        (58,149)            8,999            10,263
Other - net                                                                             (22,126)          (63,654)          (19,772)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities                                              1,436,774         1,238,540         1,107,337
------------------------------------------------------------------------------------------------------------------------------------
Investing activities including construction
Construction expenditures                                                              (618,844)         (654,221)         (675,233)
Nuclear fuel expenditures                                                                (7,056)          (14,579)          (48,705)
Contributions to nuclear decommissioning trust                                          (21,301)          (21,301)          (21,301)
Common equity component of allowance for funds used during construction                   2,364             4,321             3,274
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities including construction                        (644,837)         (685,780)         (741,965)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Repurchase of common stock                                                             (115,247)               --                --
Issuance of long-term debt                                                              460,000           480,000           525,000
Retirement of long-term debt                                                           (200,000)         (106,256)         (183,524)
Advance refunding of preferred stock and long-term debt                                (773,645)               --          (412,311)
Issuance and refunding costs                                                             (8,864)           (8,930)          (18,480)
Funds held for refunding of debt                                                        328,874          (328,874)               --
Common stock dividends                                                                 (496,945)         (493,711)         (488,756)
Preferred stock dividends                                                               (18,138)          (18,413)          (22,711)
Corporate restructuring to establish holding company                                   (121,404)               --                --
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities including dividends                           (945,369)         (476,184)         (600,782)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments                         (153,432)           76,576          (235,410)
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at January 1                                        183,458           106,882           342,292
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31                                  $    30,026       $   183,458       $   106,882
------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
  Interest                                                                          $   285,956       $   310,310       $   309,279
  Income taxes                                                                          375,125           335,586           349,192
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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





<PAGE>
                                       -48-

Consolidated Statement of Capitalization Consolidated Edison Company of New 
York, Inc.

<TABLE>
<CAPTION>
At December 31 (Thousands of Dollars)                                                 1998             1997
------------------------------------------------------------------------------------------------------------
                                                  Shares outstanding
                                             ----------------------------
                                             December 31,    December 31,
                                                 1998            1997
                                             ----------------------------
<S>                                          <C>             <C>               <C>              <C>        
Common shareholders' equity (Note B)
Common stock                                 235,488,094     235,489,650       $ 1,482,341      $ 1,482,351
Retained earnings                                                                4,517,529        4,484,703
Repurchased Consolidated Edison, Inc.
  common stock                                                                    (120,790)              --
Capital stock expense                                                              (36,356)         (36,975)
------------------------------------------------------------------------------------------------------------
Total common shareholders' equity                                                5,842,724        5,930,079
------------------------------------------------------------------------------------------------------------
Preferred stock (Note B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
  7.20%  Series I                                     --         475,000                --           47,500
  6-1/8% Series J                                370,500         370,500            37,050           37,050
------------------------------------------------------------------------------------------------------------
Total subject to mandatory redemption                                               37,050           84,550
------------------------------------------------------------------------------------------------------------
Other preferred stock
$5 Cumulative Preferred, without par value,
  authorized 1,915,319 shares                  1,915,319       1,915,319           175,000          175,000
Cumulative Preferred, $100 par value,
  authorized 6,000,000 shares*
    5-3/4%  Series A                                  --          70,612                --            7,061
    5-1/4%  Series B                                  --         138,438                --           13,844
    4.65%   Series C                             153,296         153,296            15,330           15,330
    4.65%   Series D                             222,330         222,330            22,233           22,233
------------------------------------------------------------------------------------------------------------
Total other preferred stock                                                        212,563          233,468
------------------------------------------------------------------------------------------------------------
Total preferred stock                                                          $   249,613      $   318,018
------------------------------------------------------------------------------------------------------------
</TABLE>

*     Represents total authorized shares of cumulative preferred stock, $100 par
      value, including preferred stock subject to mandatory redemption.



<PAGE>
                                       -49-
<TABLE>
<CAPTION>
At December 31 (Thousands of Dollars)                                          1998            1997
----------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity                 Interest Rate     Series
----------------------------------------------------------------------------------------------------
<S>                         <C>            <C>                          <C>             <C>        
Debentures:
1998                        6-1/4 %        1993 A                       $        --     $   100,000
1998                        5.70           1993 F                                --         100,000
1999                        6-1/2          1992 D                            75,000          75,000
1999                        *              1994 B                           150,000         150,000
2000                        7-3/8          1992 A                           150,000         150,000
2000                        7.60           1992 C                           125,000         125,000
2001                        6-1/2          1993 B                           150,000         150,000
2001                        *              1996 B                           150,000         150,000
2002                        6-5/8          1993 C                           150,000         150,000
2002                        *              1997 A                           150,000         150,000
2003                        6-3/8          1993 D                           150,000         150,000
2004                        7-5/8          1992 B                           150,000         150,000
2005                        7-3/8          1992 E                                --          75,000
2005                        6-5/8          1995 A                           100,000         100,000
2007                        6.45           1997 B                           330,000         330,000
2008                        6-1/4          1998 A                           180,000              --
2008                        6.15           1998 C                           100,000              --
2023                        7-1/2          1993 G                           380,000         380,000
2026                        7-3/4          1996 A                           100,000         100,000
2027                        8.05           1992 F                                --         100,000
2028                        7.10           1998 B                           105,000              --
2028                        6.90           1998 D                            75,000              --
2029                        7-1/8          1994 A                           150,000         150,000
----------------------------------------------------------------------------------------------------
Total debentures                                                          2,920,000       2,835,000
----------------------------------------------------------------------------------------------------

<CAPTION>
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for 
Facilities Revenue Bonds:
<S>                         <C>           <C>                              <C>             <C>        
2020                        6.10  %        1995 A                           128,285         128,285
2020                        5-1/4          1993 B                           127,715         127,715
2021                        7-1/2          1986 A                                --         150,000
2022                        7-1/8          1987 A                                --         100,855
2022                        9-1/4          1987 B                                --          29,385
2022                        5-3/8          1993 C                            19,760          19,760
2024                        7-3/4          1989 A                                --         150,000
2024                        7-3/8          1989 B                                --         100,000
2024                        7-1/4          1989 C                           150,000         150,000
2025                        7-1/2          1990 A                           150,000         150,000
2026                        7-1/2          1991 A                           128,150         128,150
2027                        6-3/4          1992 A                           100,000         100,000
2027                        6-3/8          1992 B                           100,000         100,000
2028                        6              1993 A                           101,000         101,000
2029                        7-1/8          1994 A                           100,000         100,000
----------------------------------------------------------------------------------------------------
Total tax-exempt debt                                                     1,104,910       1,635,150
----------------------------------------------------------------------------------------------------
Subordinated deferrable interest debentures:
2031                        7-3/4 %        1996 A                           275,000         275,000
----------------------------------------------------------------------------------------------------
Other long-term debt                                                            868           1,722
Unamortized debt discount                                                   (25,670)        (28,581)
----------------------------------------------------------------------------------------------------
Total                                                                     4,275,108       4,718,291
Less: Long-term debt due within one year                                    225,000         529,385
----------------------------------------------------------------------------------------------------
Total long-term debt                                                      4,050,108       4,188,906
----------------------------------------------------------------------------------------------------
Total capitalization                                                    $10,142,445     $10,437,003
----------------------------------------------------------------------------------------------------
</TABLE>

*     Rate reset quarterly. At December 31, 1998 the rates for Series 1994 B,
      Series 1996 B and Series 1997 A were 5.5%, 5.32063% and 5.28063%,
      respectively.

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




<PAGE>
                                       -50-

Notes To Consolidated Financial Statements

These footnotes accompany and form an integral part of the consolidated
financial statements of Consolidated Edison, Inc. (CEI) and its consolidated
subsidiaries, including Consolidated Edison Company of New York, Inc. (Con
Edison), and the consolidated financial statements of Con Edison and its
consolidated subsidiaries.

Operations

On January 1, 1998 Con Edison became a subsidiary of its new parent holding
company, CEI, when the outstanding shares of common stock, $2.50 par value, of
Con Edison were exchanged on a share-for-share basis for shares of common stock,
$.10 par value, of CEI.

CEI, through its subsidiaries, provides a wide range of energy-related products
and services to its customers. Con Edison supplies electric service in all of
New York City (except part of Queens) and most of Westchester County, a service
area with a population of more than eight million people. It also supplies gas
in Manhattan, The Bronx and parts of Queens and Westchester, and steam in part
of Manhattan.

CEI subsidiaries other than Con Edison include Consolidated Edison Solutions,
Inc. (Con Edison Solutions), Consolidated Edison Development, Inc. (Con Edison
Development) and Consolidated Edison Energy, Inc. (Con Edison Energy). Con
Edison Solutions is an energy service company providing competitive gas and
electric supply and energy-related products and services, primarily in the
Northeast. Con Edison Development invests in energy infrastructure projects and
markets technical services. Con Edison Energy markets specialized energy supply
services to wholesale customers in the Northeast and the Mid-Atlantic states.

Acquisition

In May 1998 CEI agreed to acquire Orange and Rockland Utilities, Inc. (O&R) for
cash at a price of $58.50 per share of O&R common stock (approximately $790
million in aggregate) pursuant to an Agreement and Plan of Merger among the
parties. The transaction is subject to certain conditions, including the
approvals of state and Federal regulatory agencies. O&R supplies electric and
gas service in Orange and Rockland counties in New York State and in New Jersey
and Pennsylvania.

Note A Summary of Significant Accounting Policies

Principles of Consolidation   The accompanying consolidated financial statements
of CEI include the accounts of CEI and its consolidated subsidiaries, including
Con Edison. The accompanying consolidated financial statements of Con Edison
include the accounts of Con Edison and its consolidated subsidiaries.
Intercompany transactions have been eliminated.

PSC Settlement Agreement In May 1996 the New York State Public Service
Commission (PSC), in its Competitive Opportunities proceeding, endorsed a
fundamental restructuring of the electric utility industry in New York State,
based on competition in the generation and energy services sectors of the
industry. In September 1997 the PSC approved a settlement agreement between Con
Edison, the PSC staff and certain other parties (the Settlement Agreement). The
Settlement Agreement provides for a transition to a competitive electric market
through the development of a "retail access" plan, a rate plan for the period
ending March 31, 2002, a reasonable opportunity for recovery of "strandable
costs" and the divestiture by Con Edison to unaffiliated third parties of
fossil-fueled electric generating capacity located in New York City.

The retail access plan will eventually permit all of Con Edison's electric
customers to buy electricity from other suppliers. In June 1998 approximately
68,000 Con Edison customers representing approximately 1,000 megawatts (MW) of
aggregate customer load began purchasing electricity from other power providers
under the first phase of Con Edison's electric Retail Choice program. The
delivery of electricity to customers will continue to be through Con Edison's
transmission and distribution systems.

The Settlement Agreement provided for the divestiture to third parties of at
least 50 percent of Con Edison's New York City fossil-fueled electric generating
capacity. It also provided that Con Edison can retain for shareholders the first
$50 million of any net after-tax gains from the divestiture. In July 1998 the
PSC issued an order amending the Settlement Agreement (the Divestiture Order).
The Divestiture Order requires Con Edison to auction all of its New York City
fossil-fueled electric generating capacity to unaffiliated third parties. The
order permits Con Edison to apply up to $50 million of any net after-tax gains
from the divestiture, in excess of the first $50 million of net gains, to reduce
the net book value of the Indian Point 2 nuclear generating unit (IP 2). Any net
gains or any net losses from divestiture in excess of $100 million will be
deferred for disposition by the PSC. Sales of electric generating capacity are
subject to PSC approval and contingent on the New York independent system
operator (ISO) being operational, unless otherwise determined by the PSC.



<PAGE>
                                       -51-
 
In January 1999 Con Edison entered into agreements to sell 3,624 MW of its
electric capacity to unaffiliated third parties for approximately $1.1 billion.
In November 1998 Con Edison entered into an agreement to sell its two-thirds
interest in the 1,200-MW Bowline Point generating station operated by O&R to an
unaffiliated third party for approximately $133 million. The estimated net
after-tax gain from these sales is approximately $284 million. See Note K.

Con Edison's potential electric strandable costs are those prior utility
investments and commitments that may not be recoverable in a competitive
electric supply market, including the unrecovered book cost of Con Edison's
electric generating plants, the future cost of decommissioning the IP 2 and the
retired IP 1 nuclear generating stations and charges under contracts with
non-utility generators (NUGs). Con Edison is recovering potential electric
strandable costs in the rates it charges all customers, including those
customers purchasing electricity from others. Pursuant to the Settlement
Agreement, following March 31, 2002, Con Edison will be given a reasonable
opportunity to recover, through a non-bypassable charge to customers, any
remaining strandable costs, including a reasonable return on investments. For
any remaining fossil-related strandable costs, the recovery period will be 10
years. For remaining nuclear-related strandable costs, the recovery period will
extend no longer than the end of IP 2's operating license in 2013.
Reconciliation of estimated and actual decommissioning costs may be reflected in
rates after 2013. With respect to Con Edison's NUG contracts, see Notes G and K.

Accounting Policies The accounting policies of CEI and Con Edison conform to
generally accepted accounting principles. For regulated public utilities,
generally accepted accounting principles include 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
and rate-making practices of the Federal Energy Regulatory Commission (FERC) and
the PSC.

The standards in SFAS No. 101, "Regulated Enterprises - Accounting for the
Discontinuation of Application of the Financial Accounting Standards Board
(FASB) Statement No. 71," apply to the non-nuclear electric supply portion of
Con Edison's business that is being deregulated as a result of the Settlement
Agreement (the Deregulated Business). The Deregulated Business includes all of
Con Edison's fossil electric generating assets, which had a net book value of
approximately $1.4 billion at December 31, 1998, including approximately $187
million relating to Con Edison's share of the Bowline Point and Roseton
stations. The application of SFAS No. 101 to the Deregulated Business had no
material adverse effect on the financial position or results of operations of
CEI or Con Edison.

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires certain assets to be reviewed for
impairment if the carrying amount of the assets may not be recoverable, requires
that assets to be disposed of be carried at the lower of net book value or fair
value, and amends SFAS No. 71 to require that regulatory assets be charged to
earnings if such assets are no longer considered probable of recovery. No
impairment of Con Edison's fossil generating assets has been recognized because
the estimated cash flows from the operation and/or sale of the assets, together
with the cash flows from the strandable cost recovery provisions of the
Settlement Agreement, will not be less than the net carrying amount of the
fossil generating assets.

Certain deferred charges (regulatory assets) principally relating to future
federal income taxes and certain deferred credits (regulatory liabilities) have
resulted from transactions relating or allocated to the Deregulated Business. At
December 31, 1998 regulatory assets net of regulatory liabilities amounted to
approximately $1.3 billion, of which approximately $300 million is attributable
to the Deregulated Business. There has been no charge against earnings for net
regulatory assets of Con Edison because recovery of the assets is probable under
the Settlement Agreement.

SFAS No. 5, "Accounting for Contingencies," requires accrual of a loss if it is
probable that a liability has been incurred and the amount of loss can be
reasonably estimated. No loss has been accrued for Con Edison's NUG contracts
because it is not probable that the charges by NUGs under the contracts will
exceed the cash flows from the sale by Con Edison of the electricity provided by
the NUGs, together with the cash flows provided pursuant to the Settlement
Agreement.

Utility Plant and Depreciation 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
Con Edison's own funds when so used, determined in accordance with PSC and FERC
regulations. The AFDC rate was 9.1 percent in 1998 and 1997 and 9.0 percent in
1996. The rate was compounded semiannually, and the amounts applicable to
borrowed funds were treated as a reduction of interest charges.

The annual charge for depreciation is computed using the straight-line method
for financial statement purposes with rates based on average lives and net
salvage factors, with the exception of IP 2, Con Edison's share of the Roseton
generating station,


<PAGE>
                                       -52-

certain leaseholds and certain general equipment, which are depreciated using a
remaining life amortization method. Depreciation rates averaged approximately
3.4 percent in 1998, 1997 and 1996. In 1996 an additional provision for
depreciation of $13.9 million was accrued in connection with a preferred stock
refunding. See Note B.

Con Edison is a joint owner of two 1,200-MW electric generating stations: (1)
Bowline Point, operated by O&R, with Con Edison owning a two-thirds interest,
and (2) Roseton, operated by Central Hudson Gas & Electric Corp., with Con
Edison owning a 40 percent interest. Central Hudson has the option to acquire
Con Edison's interest in the Roseton station in 2004. Con Edison's share of the
investment in these stations at original cost and as included in its balance
sheet at December 31, 1998 and 1997 was:

(Thousands of Dollars)                                     1998             1997
--------------------------------------------------------------------------------
Bowline Point: Plant in service                        $207,423         $206,128
  Construction work in progress                           1,112            1,796
Roseton: Plant in service                               146,778          146,066
  Construction work in progress                             262              652
--------------------------------------------------------------------------------

Con Edison's share of accumulated depreciation for the Roseton station at
December 31, 1998 and 1997 was $80.9 million and $75.3 million, respectively. A
separate depreciation account is not maintained for Con Edison's share of the
Bowline Point station. Con Edison's share of operating expenses for these
stations is included in its income statement.

In November 1998 Con Edison and O&R agreed to sell their interests in Bowline
Point. See PSC Settlement Agreement in this Note A. Central Hudson has agreed to
divest generation as part of its Competitive Opportunities settlement with the
PSC.

Nuclear Decommissioning Depreciation charges include a provision for
decommissioning both IP 2 and the retired IP 1 nuclear unit. Decommissioning
costs are being accrued ratably over the IP 2 license period, which extends to
the year 2013. Con Edison has been accruing for the costs of decommissioning
within the internal accumulated depreciation reserve since 1975.

Accumulated decommissioning provisions at December 31, 1998 and 1997, which
include earnings on funds externally invested, were as follows:

                                                             Amounts Included in
                                                        Accumulated Depreciation
--------------------------------------------------------------------------------
(Millions of Dollars)                                    1998               1997
--------------------------------------------------------------------------------
Nuclear                                              $  265.1           $  211.7
Non-nuclear                                              56.7               58.2
--------------------------------------------------------------------------------
Total                                                $  321.8           $  269.9
--------------------------------------------------------------------------------

Con Edison maintains external trust funds, which at December 31, 1998 amounted
to approximately $265 million (see Investments in this Note A), for the costs of
decommissioning IP 2 and the retired IP 1 nuclear unit. The Settlement Agreement
continued in rates annual expense allowances of $21.3 million (which is
deposited in the trust fund) and $1.8 million, respectively, to fund the
estimated costs of decommissioning the nuclear and non-nuclear portions of the
units. These allowances were established pursuant to a 1995 electric rate
settlement agreement based upon a 1994 site-specific study. The study estimated
the decommissioning costs to be approximately $657 million (assuming 2016 as the
midpoint for decommissioning expenditures), including $252 million for extended
storage of spent nuclear fuel. The minimum decommissioning fund estimate
calculated in accordance with Nuclear Regulatory Commission (NRC) regulations
was $862 million as of December 31, 1998. The Settlement Agreement provides for
recovery of the decommissioning costs for IP 2 and IP 1. See PSC Settlement
Agreement in this Note A. The PSC has initiated a proceeding to consider the
future of nuclear generating units in New York State.

The FASB is currently reviewing the utility industry's accounting treatment of
nuclear and certain other plant decommissioning costs. In an exposure draft
issued in February 1996, the FASB concluded that decommissioning costs should be
accounted for as a liability at expected present value, with a corresponding
asset in utility plant, rather than as a component of depreciation. The FASB
expects to issue a new exposure draft in the second quarter of 1999.

Nuclear Fuel Nuclear fuel assemblies and components are amortized to operating
expenses based on the quantity of heat produced in the generation of
electricity. Fuel costs also include provisions for payments to the U.S.
Department of Energy (DOE) for future off-site storage of the spent fuel and for
a portion of the costs to decontaminate and decommission the DOE facilities used
to enrich uranium purchased by Con Edison. Such payments amounted to $3.4
million in 1998. Nuclear fuel costs are recovered in revenues through base rates
or through the fuel adjustment clause.

Leases In accordance with SFAS No. 71, those leases that meet the criteria for
capitalization are capitalized for accounting purposes. For rate-making
purposes, all leases have been treated as operating leases.

Revenues Con Edison's revenues for electric, gas and steam service are
recognized on a monthly billing cycle basis. Pursuant to a 1995 electric rate
agreement, Con Edison's actual electric net revenues (operating revenues less
fuel and purchased power costs and revenue taxes) were adjusted by accrual to
target levels established under the agreements in accordance with an electric
revenue adjustment mechanism (ERAM). Revenues were also increased (or decreased)
each month to reflect rewards (or penalties) earned under incentive mechanisms
for the Enlightened Energy (demand-side management) program and for customer



<PAGE>
                                       -53-

service activities. The agreements provided that the net regulatory asset (or
liability) thus accrued in each rate year would be reflected in customers' bills
in the following rate year. Effective April 1, 1997 the Settlement Agreement
eliminated the ERAM and the Enlightened Energy and electric customer service
incentives. The Settlement Agreement includes a penalty mechanism (estimated
maximum, $26 million per year) for failure to maintain certain service quality
and reliability standards. No such penalty was incurred in 1998.

A 1994 gas rate agreement provided for Con Edison's revenues to be increased (or
decreased) each month to reflect rewards (or penalties) earned under incentive
mechanisms related to gas customer service and system improvement targets. The
1997 gas rate agreement discontinued the incentive mechanisms effective October
1, 1997.

Recoverable Fuel Costs Con Edison's fuel and purchased power costs that are
above the levels included in base rates are recoverable under electric, gas and
steam fuel adjustment clauses. If costs fall below these levels, the difference
is credited to customers. For electric and steam, such costs are deferred until
the period in which they are billed or credited to customers (40 days for
electric, 30 days for steam). For gas, the excess or deficiency is accumulated
for refund or surcharge to customers on an annual basis.

Under a partial pass-through electric fuel adjustment clause (PPFAC), Con Edison
retains for stockholders 30 percent of any savings in actual costs for electric
fuel and purchased power costs below monthly target amounts, but must bear 30
percent of any excess of actual costs over the target. For each rate year there
is a $35 million cap on the maximum incentive or penalty, with a limit (within
the $35 million) of $10 million for costs associated with generation at IP 2.

Enlightened Energy Program Costs In accordance with PSC directives, Con Edison
deferred the costs of its Enlightened Energy program for future recovery from
ratepayers. Such deferrals amounted to $68.4 million at December 31, 1998 and
$117.8 million at December 31, 1997. The recovery of the deferred Enlightened
Energy program costs is reflected in rates.

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

Investments For 1998 and 1997, investments consisted primarily of the nuclear
decommissioning trust fund and investments of Con Edison Solutions and Con
Edison Development. The nuclear decommissioning trust fund is stated at market;
investments of Con Edison Solutions and Con Edison Development are recorded
using the equity method. Earnings on the nuclear decommissioning trust fund are
not recognized in income but are included in the accumulated depreciation
reserve. See Nuclear Decommissioning in this Note A.

Gas Hedging Con Edison utilizes derivative commodity instruments under its gas
hedging program in order to protect its gas inventory and anticipated gas
purchases against adverse market price fluctuations. Con Edison defers the
related hedging gains and losses until the underlying gas commodity is withdrawn
from storage or purchased from a supplier and then adjusts the cost of its gas
accordingly. All hedging gains or losses are credited or charged to customers
through Con Edison's gas fuel adjustment clause.

Con Edison Solutions uses futures contracts to hedge natural gas transactions in
order to minimize the risk of unfavorable market price fluctuations. Gains or
losses on these futures contracts are deferred until gas is purchased, at which
time gas expense is adjusted accordingly. At December 31, 1998 deferred gains or
losses were not material.

Neither CEI, Con Edison nor any of their respective consolidated subsidiaries
enters into derivative transactions that do not meet the criteria for hedges and
that do not qualify for deferred accounting treatment. If for any reason a
derivative transaction were no longer classified as a hedge, inventory or gas
expense, as appropriate, would be adjusted for unrealized gains and losses
relating to the transaction.

New Financial Accounting Standards SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," is effective for fiscal years beginning
after June 15, 1999. The application of this standard will not have a material
effect on the financial position or results of operations of CEI or Con Edison
or materially change their current disclosure practices.

In December 1998 the FASB Emerging Issues Task Force (EITF) reached a consensus
on Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and
Risk Management Activities." During 1998 neither CEI, Con Edison nor any of
their consolidated subsidiaries entered into any transactions that would be
subject to EITF Issue No. 98-10.

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 substantially all temporary differences between the book and tax
bases of assets and liabilities at current tax rates. In accordance with rate
agreements, Con Edison has recovered amounts from customers for a portion of the
tax expense it will pay in the future as a result of the reversal or
"turn-around" of these temporary differences. As to the remaining temporary
differences, in accordance with SFAS No. 71, Con Edison has established a
regulatory asset for the net revenue requirements to be recovered from customers
for the related future tax expense. In 1993 the PSC issued an


<PAGE>
                                       -54-

Interim Policy Statement proposing accounting procedures consistent with SFAS
No. 109 and providing assurances that these future increases in taxes will be
recoverable in rates. The final policy statement is not expected to differ
materially from the Interim Policy Statement. See Note I.

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.

CEI and its subsidiaries file a consolidated federal income tax return. Income
taxes are allocated to each company based on its taxable income.

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 1998, 1997
and 1996, amounting to $20.3 million, $25.9 million and $32.3 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 current year presentation. In particular, prior year amounts for CEI have
been reclassified to reflect results of operations of its non-utility
subsidiaries.

Estimates The accompanying consolidated financial statements reflect judgments
and estimates made in the application of the above accounting policies.

Note B Capitalization

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

Preferred Stock Not Subject To Mandatory Redemption Con Edison has the option to
redeem its $5 cumulative preferred stock at $105.00 and its cumulative preferred
stock, Series C and Series D, at a price of $101.00 per share (in each case,
plus accrued and unpaid dividends).

Preferred Stock Subject To Mandatory Redemption Con Edison is required to redeem
its cumulative preferred stock, Series J shares on August 1, 2002. The
redemption price is $100 per share (plus accrued and unpaid dividends). Series J
shares may not be called for redemption while dividends are in arrears on
outstanding shares of $5 cumulative preferred stock or other cumulative
preferred stock.

Preferred Stock Refunding In March 1996 Con Edison canceled approximately $227
million of its preferred stock purchased at a price below the stock's $100 par
value pursuant to a tender offer and redeemed an additional $90 million of its
preferred stock. In accordance with the PSC order approving the issuance of
subordinated deferrable interest debentures to refund the preferred stock, Con
Edison offset the net gain of $13.9 million by accruing an additional provision
for depreciation equal to the net gain. In December 1997 Con Edison redeemed its
Series B convertible preference stock. During 1997 and 1996, 38,158 shares and
2,869 shares of Series B preference stock were converted into 496,054 shares and
37,297 shares of common stock. In November 1998 Con Edison redeemed three series
of its outstanding cumulative preferred stock: 5-3/4% Series A, 5-1/4% Series B
and 7.20% Series I.

Common Stock In May 1998 CEI commenced a repurchase program for up to $1 billion
of its common stock. Through December 31, 1998, a total of 2.65 million CEI
shares were repurchased by Con Edison at a total cost of $120.8 million.

Dividends Beginning in 1998, dividends on CEI's common shares depend primarily
on the dividends and other distributions that Con Edison and CEI's other
subsidiaries pay to CEI and the capital requirements of CEI and its
subsidiaries. The Settlement Agreement limits the dividends that Con Edison may
pay to not more than 100 percent of Con Edison's 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 necessary to transfer
to CEI proceeds from major transactions, such as asset sales, or to dividends
reducing Con Edison's equity ratio to a level appropriate to Con Edison's
business risk.

Payment of Con Edison's common stock dividends to CEI is subject to certain
additional restrictions. No dividends may be paid, or funds set apart for
payment, on Con Edison's common stock until all dividends accrued on the $5
cumulative preferred stock and other cumulative preferred stock have been paid,
or declared and set apart for payment, and unless Con Edison is not in arrears
on its mandatory redemption obligation for the Series J cumulative preferred
stock. No dividends may be paid on any of Con Edison's capital stock during any
period in which Con Edison has deferred payment of interest on its subordinated
deferrable interest debentures.

Long-Term Debt Long-term debt maturing in the period 1999-2003 is as follows:

(Millions of Dollars)
--------------------------------------------------------------------------------
1999                                                                       $ 225
2000                                                                         275
2001                                                                         300
2002                                                                         300
2003                                                                         150
--------------------------------------------------------------------------------
          
Con Edison's long-term debt is stated at cost which, as of December 31, 1998,
approximates fair value. The fair value of Con Edison's long-term debt is
estimated based on current rates for debt of the same remaining maturities.



<PAGE>
                                       -55-

Note C Short-Term Borrowing

Con Edison has a $500 million commercial paper program, supported by revolving
credit agreements with banks. At December 31, 1998 Con Edison had no short-term
debt outstanding. In February 1999 CEI entered into revolving credit agreements
with banks, which it intends to use to support a $350 million commercial paper
program. Bank commitments under the revolving credit agreements may terminate
upon a change in control of CEI, 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 not at any time exceed 0.65 to 1. At
December 31, 1998 this ratio was 0.41 to 1 for both CEI and Con Edison.
Borrowings under the CEI and Con Edison commercial paper programs or the
revolving credit agreements are expected to be at prevailing market rates.

Note D Pension Benefits

Con Edison has non-contributory pension plans that cover substantially all of
its employees and certain employees of other CEI subsidiaries. The plans are
designed to comply with the Employee Retirement Income Security Act of 1974
(ERISA).

Con Edison recognizes investment gains and losses over five years and amortizes
unrecognized actuarial gains and losses over 10 years.

The components of CEI's net periodic pension cost for 1998, 1997 and 1996 were
as follows:

(Millions of Dollars)                            1998         1997         1996
-------------------------------------------------------------------------------
Service cost - including
  administrative expenses*                   $  104.7     $  111.4     $  120.2
Interest cost on projected
  benefit obligation                            346.8        334.3        320.1
Expected return on plan assets                 (445.1)      (407.3)      (376.0)
Amortization of net
  actuarial loss (gain)                         (71.7)       (42.0)        (4.8)
Amortization of prior
  service cost                                   10.3         10.2          8.5
Amortization of transition
  obligation                                      3.0          3.0          3.0
-------------------------------------------------------------------------------
Net periodic pension cost                       (52.0)         9.6         71.0
-------------------------------------------------------------------------------
Amortization of regulatory
  asset**                                         2.2          2.2          2.2
-------------------------------------------------------------------------------
Total pension cost                           $  (49.8)    $   11.8     $   73.2
-------------------------------------------------------------------------------
Cost capitalized                                 (9.2)         2.5         15.4
Cost charged to operating
  expenses                                      (40.6)         9.3         57.8
-------------------------------------------------------------------------------
*     Effective January 1, 1998, an assumption for administrative expenses is
      included as a component of service cost.

**    Relates to $33.3 million increase in pension obligations from a 1993
      special retirement program.

Con Edison's net periodic pension costs for 1998 were not materially different
from, and for 1997 and 1996 were the same as, CEI's costs.

The funded status of the plans at December 31, 1998, 1997 and 1996 was as
follows:

(Millions of Dollars)                          1998          1997          1996
--------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at
  beginning of year                      $  4,940.6    $  4,703.0    $  4,657.4
Service cost - excluding
  administrative expenses                     103.4         111.4         120.2
Interest cost on projected
  benefit obligation                          346.8         334.3         320.1
Plan amendments                                 2.1           0.5          23.2
Actuarial loss (gain)                         192.6         (24.2)       (250.7)
Benefits paid                                (201.4)       (184.4)       (167.2)
-------------------------------------------------------------------------------
Benefit obligation at
  end of year                            $  5,384.1    $  4,940.6    $  4,703.0
-------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at
  beginning of year                      $  5,988.7    $  5,269.3    $  4,775.8
Actual return on plan assets                  903.3         886.9         603.6
Employer contributions                          1.4          25.2          67.1
Benefits paid                                (201.4)       (184.4)       (167.2)
Administrative expenses                       (12.8)         (8.3)        (10.0)
-------------------------------------------------------------------------------
Fair value of plan assets at
  end of year                            $  6,679.2    $  5,988.7    $  5,269.3
-------------------------------------------------------------------------------

Funded status                            $  1,295.1    $  1,048.1    $    566.3
Unrecognized net loss (gain)               (1,339.8)     (1,157.4)       (703.8)
Unrecognized prior
  service costs                                82.2          90.4         100.1
Unrecognized net transition
  liability at January 1, 1987*                 8.3          11.3          14.3
-------------------------------------------------------------------------------
Prepaid (accrued)
  benefit cost                           $     45.8    $     (7.6)   $    (23.1)
-------------------------------------------------------------------------------
*     Being amortized over approximately 15 years.

The funded status and prepaid (accrued) benefit costs shown above are with
regard to CEI. The amounts with regard to Con Edison at the end of year 1998
were not materially different from, and at the end of years 1997 and 1996 were
the same as, those shown for CEI.



<PAGE>
                                       -56-

The actuarial assumptions at December 31, 1998, 1997 and 1996 were as follows:

                                                  1998        1997        1996
-------------------------------------------------------------------------------
Discount rate                                     6.75%       7.25%       7.25%
Expected return on plan assets                    8.50%       8.50%       8.50%
Rate of compensation increase                     4.80%       5.80%       5.80%

Note E Postretirement Benefits Other Than Pensions (OPEB)

Con Edison has a contributory comprehensive hospital, medical and prescription
drug program for all retirees, their dependents and surviving spouses. Con
Edison also has a contributory life insurance program for bargaining unit
employees. Con Edison provides basic life insurance benefits up to a specified
maximum at no cost to retired management employees. Retired management employees
must contribute to the cost of supplemental life insurance benefits in excess of
the specified maximum. Certain employees of other CEI subsidiaries are eligible
to receive benefits under these programs. Con Edison has reserved the right to
amend or terminate these programs.

Con Edison recognizes investment gains and losses over five years and amortizes
unrecognized actuarial gains and losses over 10 years.

The components of CEI's postretirement benefit (health and life insurance) costs
for 1998, 1997 and 1996 were as follows:

(Millions of Dollars)                             1998        1997         1996
-------------------------------------------------------------------------------
Service cost                                   $  14.9     $  15.7     $   17.4
Interest cost on accumulated
  postretirement benefit
  obligation                                      70.8        71.0         68.9
Expected return on plan assets                   (38.2)      (36.5)       (27.8)
Amortization of net
  actuarial loss                                  20.9        21.4         27.6
Amortization of transition
  obligation                                      21.5        25.9         25.9
-------------------------------------------------------------------------------
Net periodic postretirement
  benefit cost                                 $  89.9     $  97.5     $  112.0
-------------------------------------------------------------------------------
Cost capitalized                                  16.7        20.0         23.5
Cost charged to operating
  expenses                                        73.2        77.5         88.5
-------------------------------------------------------------------------------

Con Edison's postretirement benefit costs for 1998 were not materially different
from, and for 1997 and 1996 were the same as, CEI's costs.

The program's funded status at December 31, 1998, 1997 and 1996 was as follows:

(Millions of Dollars)                            1998        1997          1996
-------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at
  beginning of year                        $    964.1    $  999.1    $  1,004.0
Service cost                                     14.9        15.7          17.4
Interest cost on accumulated
  postretirement benefit
  obligation                                     70.8        71.0          68.9
Plan amendments                                 (44.8)      (66.5)           --
Actuarial loss (gain)                           133.7       (13.4)        (49.8)
Benefits paid and
  administrative expenses                       (51.7)      (50.2)        (49.5)
Participant contributions                        10.0         8.4           8.1
-------------------------------------------------------------------------------
Benefit obligation at
  end of year                              $  1,097.0    $  964.1    $    999.1
-------------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at
  beginning of year                        $    574.1    $  444.2    $    322.2
Actual return on plan assets                    119.3       100.4          51.4
Employer contributions                           14.1        71.3         112.0
Participant contributions                        10.0         8.4           8.1
Benefits paid                                   (47.7)      (46.7)        (46.1)
Administrative expenses                          (4.0)       (3.5)         (3.4)
-------------------------------------------------------------------------------
Fair value of plan assets at
  end of year                              $    665.8    $  574.1    $    444.2
-------------------------------------------------------------------------------

Funded status                              $   (431.2)   $ (390.0)   $   (554.9)
Unrecognized net loss                            73.0        41.3         139.9
Unrecognized prior
  service costs                                  12.6          --            --
Unrecognized net transition
  liability at January 1, 1993*                 243.6       322.6         415.0
-------------------------------------------------------------------------------
Accrued postretirement
  benefit cost                             $   (102.0)   $  (26.1)   $       --
-------------------------------------------------------------------------------
*     Being amortized over a period of 20 years.

The funded status and accrued postretirement benefit costs shown above are with
regard to CEI. The amounts with regard to Con Edison at the end of year 1998
were not materially different from, and at the end of years 1997 and 1996 were
the same as, those shown for CEI.

The actuarial assumptions at December 31, 1998, 1997 and 1996 were as follows:

                                                   1998        1997        1996
-------------------------------------------------------------------------------
Discount rate                                      6.75%       7.25%       7.25%
Expected return on plan assets
  Tax-exempt assets                                8.50%       8.50%       8.50%
  Taxable assets                                   7.50%       8.50%       8.50%
-------------------------------------------------------------------------------




<PAGE>
                                       -57-

The health care cost trend rate assumed for 1998 was 8.0 percent; for 1999, 7.5
percent; and then declining one-half percent per year to 5 percent for 2004 and
thereafter. A one-percentage point change in the assumed health care cost trend
rates would have the following effects:

                                          1-Percentage-           1-Percentage-
(Millions of Dollars)                     Point Increase          Point Decrease
--------------------------------------------------------------------------------
Effect on accumulated                                         
  postretirement benefit                                      
  obligation                                  $136.5                  $119.4
Effect on service cost                                        
  and interest cost                                           
  components                                  $ 11.8                  $ 10.1
--------------------------------------------------------------------------------

Note F Contingencies

Indian Point Nuclear generating units similar in design to Con Edison's IP 2
unit have experienced problems that have required steam generator replacement.
Inspections of the IP 2 steam generators since 1976 have revealed various
problems, some of which appear to have been arrested, but the remaining service
life of the steam generators is uncertain. The projected service life of the
steam generators is reassessed periodically in light of the inspections made
during scheduled outages of the unit. Based on the latest available data and
current NRC criteria, Con Edison estimates that steam generator replacement will
not be required before 2002. Con Edison has replacement steam generators, which
are stored at the site. Replacement of the steam generators would require
estimated additional expenditures of up to $100 million (exclusive of
replacement power costs) and an outage of approximately three months. However,
securing necessary permits and approvals or other factors could require a
substantially longer outage if steam generator replacement is required on short
notice.

The Settlement Agreement (described in Note A) does not contemplate the
divestiture or transfer of IP 2. The PSC has, however, initiated a proceeding to
consider the future of nuclear generating facilities in New York State.

Nuclear Insurance The insurance policies covering Con Edison's nuclear
facilities for property damage, excess property damage, and outage costs permit
assessments under certain conditions to cover insurers' losses. As of December
31, 1998, the highest amount that could be assessed for losses during the
current policy year under all of the policies was $18.9 million. While
assessments may also be made for losses in certain prior years, neither CEI nor
Con Edison is aware of any losses in such years that are believed likely to
result in an assessment.

Under certain circumstances, in the event of nuclear incidents at facilities
covered by the federal government's third-party liability indemnification
program, Con Edison could be assessed up to $88.1 million per incident, of which
not more than $10 million may be assessed in any one year.

Environmental Matters The normal course of operations of certain of CEI's
subsidiaries, including Con Edison, necessarily involves activities and
substances that expose the subsidiaries to potential liabilities under laws and
regulations protecting the environment. Liabilities under these laws and
regulations 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. Sources of potential environmental
liabilities include (but are not limited to) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (Superfund) and
similar state statutes, asbestos, and electric and magnetic fields (EMF).

Superfund By its terms Superfund imposes joint and several strict liability,
regardless of fault, upon generators of hazardous substances for resulting
removal and remedial costs and environmental damages. Con Edison has received
process or notice concerning possible claims under Superfund or similar state
statutes relating to a number of sites at which it is alleged that hazardous
substances generated by Con Edison (and, in most instances, a large number of
other potentially responsible parties) were deposited. Estimates of Con Edison's
liability for these sites range from extremely preliminary to highly refined. At
December 31, 1998, a liability of approximately $23.2 million had been accrued.
There will be additional costs, the materiality of which is not presently
determinable.

Asbestos Claims Suits have been brought in New York State and federal courts
against Con Edison 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 Con
Edison. Many of these suits have been disposed of without any payment by Con
Edison, or for immaterial amounts. The amounts specified in all the remaining
suits total billions of dollars but CEI and Con Edison believe that these
amounts are greatly exaggerated, as were the claims already disposed of. Based
on the information and relevant circumstances known to CEI and Con Edison at
this time, nether CEI nor Con Edison believes that these suits will have a
material adverse effect on their respective financial position, results of
operations or liquidity.

EMF Electric and magnetic fields are found wherever electricity is used. In the
event a causal relationship between EMF and adverse health effects is
established, or independently of any such causal determination, in the event of
adverse developments in related legal or public policy doctrines, there could be
a material adverse effect on the electric utility industry, including CEI and
Con Edison.



<PAGE>
                                       -58-

Note G Non-Utility Generators (NUGs)

Con Edison has contracts with NUGs for 2,071 MW of electric generating capacity.
Assuming performance by the NUGs, Con Edison is obligated over the terms of
these contracts (which extend for various periods, up to 2036) to make capacity
and other fixed payments.

For the years 1999-2003, capacity and other fixed payments are estimated to be
$508 million, $477 million, $485 million, $494 million and $503 million. Such
payments gradually increase to approximately $600 million in 2013, and
thereafter decline significantly. For energy delivered under these contracts,
Con Edison is obligated to pay variable prices that are estimated to be
approximately at market levels.

Con Edison is recovering its charges under contracts with NUGs in rates under
the Settlement Agreement (see "PSC Settlement Agreement" in Note A). The
Settlement Agreement provides that, following March 31, 2002, Con Edison will be
given a reasonable opportunity to recover, through a non-bypassable charge to
customers, at least 90 percent of the amount, if any, by which the actual costs
of its purchases under the contracts exceed market value.

Any potential NUG contract disallowance will be limited to the lower of (i) 10
percent of the above-market costs or (ii) $300 million (in 2002 dollars). The
potential disallowance will be offset by the amount of NUG contract mitigation
achieved by Con Edison after April 1, 1997 and 10 percent of the gross proceeds
of generating unit sales to third parties. Con Edison has achieved NUG contract
mitigation of $115 million (as discussed in the next paragraph) and has entered
into agreements to sell generating units for approximately $1.235 billion which,
subject to completion of the sales, would offset the disallowance by
approximately $123.5 million (see "PSC Settlement Agreement" in Note A). Ten
percent of the gross proceeds of sales of Con Edison's remaining fossil-fueled
electric generating capacity will also offset the disallowance. See Note K. Con
Edison will be permitted a reasonable opportunity to recover any costs subject
to disallowance that are not offset by these two factors if it makes good faith
efforts in implementing provisions of the Settlement Agreement leading to the
development of a competitive electric market in its service territory and the
development of an independent system operator (which is expected to administer
the wholesale electric market in New York State).

In October 1998 the PSC allowed Con Edison to offset the potential disallowance
by approximately $115 million (in 2002 dollars), as a result of termination of
NUG contracts for 42.5 MW of capacity. This offset will be reduced to the extent
Con Edison retains revenues relating to capacity costs avoided as a result of
the terminations and for any replacement capacity costs that Con Edison recovers
in rates.

Note H Stock-Based Compensation

Stock Option Plan Under CEI's Stock Option Plan, options may be granted to
officers and key employees of CEI and its subsidiaries for up to 10 million
shares of CEI's common stock. Generally, options become exercisable three years
after the grant date and remain exercisable until 10 years from the grant date.
No options were exercisable at December 31, 1998.

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," CEI and
Con Edison follow Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for employee stock options. Under APB 25, because the exercise price
of stock options awarded under CEI's Stock Option Plan equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Disclosure of pro-forma information regarding net income and earnings per share
is required by SFAS No. 123. The information presented below is in regard to the
income and earnings per share of CEI. The information for Con Edison would not
be materially different. The information has been determined as if the stock
options had been accounted for under the fair value method of that statement.
The fair values of 1998, 1997 and 1996 options are $4.76, $2.84 and $2.49 per
share, respectively. They were estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

                                            1998             1997          1996
-------------------------------------------------------------------------------
Risk-free interest rate                     5.61%            6.46%         6.74%
Expected lives - in years                      8                8            8
Expected stock volatility                  12.68%           14.08%        16.28%
Dividend yield                              4.98%            6.67%         7.46%
-------------------------------------------------------------------------------
                                                                   
Had the stock options been accounted for under SFAS No. 123, basic and diluted
earnings per share for 1998 for CEI would be $3.03 per share, or $.01 per share
less than the amount reported, and pro-forma net income for common stock for CEI
would be $711,097,000, or $1,645,000 less than the amount reported for 1998. For
years 1997 and 1996, basic and diluted earnings per share would be unaffected,
and pro-forma net income for common stock would be $693,680,000 ($799,000 less
than the amount reported) for 1997 and $687,938,000 ($231,000 less than the
amount reported) for 1996.



<PAGE>
                                       -59-

A summary of the status of CEI's Stock Option Plan as of December 31, 1998, 1997
and 1996 and changes during those years is as follows:

                                                                        Weighted
                                                                         Average
                                                            Shares         Price
--------------------------------------------------------------------------------
Outstanding at 1/1/96                                            0      $      0
  Granted                                                  704,200        27.875
  Exercised                                                      0             0
  Forfeited                                                 (7,000)       27.875
--------------------------------------------------------------------------------
Outstanding at 12/31/96                                    697,200        27.875
  Granted                                                  834,600        31.500
  Exercised                                                      0             0
  Forfeited                                                (14,100)       29.620
--------------------------------------------------------------------------------
Outstanding at 12/31/97                                  1,517,700        29.850
  Granted                                                  901,650        42.605
  Exercised                                                      0             0
  Forfeited                                                (20,600)       37.055
--------------------------------------------------------------------------------
Outstanding at 12/31/98                                  2,398,750      $ 34.584
                                                   
The following summarizes the stock options outstanding at December 31, 1998,
1997 and 1996:

                        Weighted                                     
                         Average                    Shares             Remaining
Plan                    Exercise               Outstanding           Contractual
Year                       Price               at 12/31/98                  Life
--------------------------------------------------------------------------------
1998                     $42.605                   890,650               9 years
1997                     $31.500                   820,200               8 years
1996                     $27.875                   687,900               7 years
--------------------------------------------------------------------------------
                                                                     
Note I Federal Income Tax

The federal income tax amounts shown in this Note I are with regard to CEI. The
amounts for Con Edison are not materially different.

The net revenue requirements for the future federal income tax component of
accumulated deferred federal income taxes (see Note A) at December 31, 1998 and
1997 are shown on the following table:

(Millions of Dollars)                                      1998            1997
-------------------------------------------------------------------------------
Future federal income tax liability
  Temporary differences between the book
    and tax bases of assets and liabilities:
     Property related                                $  6,132.7      $  5,791.0
     Reserve for injuries and damages                     (81.4)          (57.4)
     Other                                               (165.7)         (112.9)
-------------------------------------------------------------------------------
  Total                                                 5,885.6         5,620.7
-------------------------------------------------------------------------------
Future federal income tax computed at
  statutory rate - 35%                                  2,060.0         1,967.2
Less: Accumulated deferred federal
     income taxes previously recovered                  1,441.8         1,334.7
-------------------------------------------------------------------------------
Net future federal income tax expense
  to be recovered                                         618.2           632.5
-------------------------------------------------------------------------------
Net revenue requirements for above
  (Regulatory asset - future federal
    income taxes)*                                        951.0           973.1
Add: Accumulated deferred federal
     income taxes previously recovered
       Depreciation                                     1,307.6         1,188.7
       Unbilled revenues                                  (87.2)          (98.3)
       Advance refunding of
        long-term debt                                     35.5            30.1
       Other                                              185.9           214.2
-------------------------------------------------------------------------------
     Subtotal                                           1,441.8         1,334.7
-------------------------------------------------------------------------------
Total accumulated deferred
  federal income tax                                 $  2,392.8      $  2,307.8
-------------------------------------------------------------------------------
*     Net revenue requirements will be offset by the amortization to federal
      income tax expense of accumulated deferred investment tax credits, the tax
      benefits of which Con Edison has already realized. Including the full
      effect therefrom, the net revenue requirements related to future federal
      income taxes at December 31, 1998 and 1997 are $796.0 million and $809.4
      million, respectively.



<PAGE>
                                       -60-

Note I Federal Income Tax, continued

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                         1998                1997                1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                 <C>                 <C>        
Charged to: Operations                                                         $   407,639         $   377,722         $   396,968
            Other income                                                            (2,229)              1,998                (778)
------------------------------------------------------------------------------------------------------------------------------------
Total federal income tax                                                           405,410             379,720             396,190
------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of reported net income with taxable income
Federal income tax - current                                                       318,980             357,100             355,590
Federal income tax - deferred                                                       95,140              31,450              49,510
Investment tax credits deferred                                                     (8,710)             (8,830)             (8,910)
------------------------------------------------------------------------------------------------------------------------------------
Total federal income tax                                                           405,410             379,720             396,190
Net income                                                                         729,749             712,823             694,085
------------------------------------------------------------------------------------------------------------------------------------
Income before federal income tax                                                 1,135,159           1,092,543           1,090,275
------------------------------------------------------------------------------------------------------------------------------------
Effective federal income tax rate                                                     35.7%               34.8%               36.3%
------------------------------------------------------------------------------------------------------------------------------------
Adjustments decreasing (increasing) taxable income
Tax depreciation in excess of book depreciation:
            Amounts subject to normalization                                       345,337             215,370             201,760
            Other                                                                  (50,128)            (64,502)            (99,576)
Deferred recoverable fuel costs                                                    (76,288)             (3,161)             42,008
Enlightened Energy program costs                                                   (44,126)            (21,211)            (10,564)
Pensions and other postretirement benefits                                          40,648              (6,820)            (34,136)
Power contract termination costs                                                    (4,633)            (40,657)            (38,759)
Other - net                                                                         16,656             (20,088)              3,688
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                              227,466              58,931              64,421
------------------------------------------------------------------------------------------------------------------------------------
Taxable income                                                                     907,693           1,033,612           1,025,854
------------------------------------------------------------------------------------------------------------------------------------
Federal income tax - current
Amount computed at statutory rate - 35%                                            317,693             361,764             359,049
Tax credits and other adjustments                                                    1,287              (4,664)             (3,459)
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                              318,980             357,100             355,590
------------------------------------------------------------------------------------------------------------------------------------
Charged to: Operations                                                             322,259             354,112             356,808
            Other income                                                            (3,279)              2,988              (1,218)
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                              318,980             357,100             355,590
------------------------------------------------------------------------------------------------------------------------------------
Federal income tax - deferred
Charged to: Operations                                                              94,090              32,440              49,070
            Other income                                                             1,050                (990)                440
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                          $    95,140         $    31,450         $    49,510
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>
                                       -61-

Note J Financial Information By Business Segments (a)

<TABLE>
<CAPTION>
                                                             Electric                                        Steam
------------------------------------------------------------------------------------    --------------------------------------------
(Thousands of Dollars)                            1998           1997           1996           1998            1997            1996
------------------------------------------------------------------------------------    --------------------------------------------
<S>                                        <C>            <C>            <C>            <C>             <C>             <C>        
Sales revenues                             $ 5,674,446    $ 5,635,575    $ 5,541,117    $   321,932     $   391,799     $   403,549
Intersegment revenues                           53,464         11,341         11,130          1,655           1,619           1,491
Depreciation and amortization                  439,869        429,407        425,397         17,361          16,239          15,900
Income tax expense                             351,088        311,878        330,103          5,057           8,442          14,131
Operating income                               905,976        855,061        838,194         19,416          36,080          40,125
Total assets                                10,919,857     10,972,735     10,918,398        575,018         557,607         501,314
Construction expenditures                      465,258        504,644        515,006         30,512          29,905          38,290

<CAPTION>
                                                                  Gas                                         Other
------------------------------------------------------------------------------------    --------------------------------------------
(Thousands of Dollars)                            1998           1997           1996           1998            1997            1996
------------------------------------------------------------------------------------    --------------------------------------------
<S>                                        <C>            <C>            <C>            <C>             <C>             <C>        
Sales revenues                             $   959,609    $ 1,093,880    $ 1,015,070    $   137,061     $    74,898     $   173,353
Intersegment revenues                            2,460          2,177          2,054            290              --              --
Depreciation and amortization                   60,596         57,133         55,115            688             676              93
Income tax expense                              58,665         62,590         52,926         (7,171)         (5,188)           (192)
Operating income                               141,680        154,247        135,272        (13,747)        (10,068)         (1,077)
Total assets                                 1,795,567      1,730,048      1,701,042      1,090,961       1,462,128         936,431
Construction expenditures                      123,074        119,672        121,937             --              --              --
</TABLE>

                                                            Total
--------------------------------------------------------------------------------
                                              1998           1997           1996
--------------------------------------------------------------------------------
Sales revenues                         $ 7,093,048    $ 7,196,152    $ 7,133,089
Intersegment revenues                       57,869         15,137         14,675
Depreciation and amortization              518,514        503,455        496,505
Income tax expense                         407,639        377,722        396,968
Operating income                         1,053,325      1,035,320      1,012,514
Total assets                            14,381,403     14,722,518     14,057,185
Construction expenditures                  618,844        654,221        675,233
--------------------------------------------------------------------------------
(a)   See Note A for a description of CEI's operations, including Con Edison's
      electric, gas and steam utility businesses.

Note K March 1999 Generation Divestiture

On March 2, 1999, Con Edison entered into an agreement to sell 1,855 MW of
fossil-fueled electric generating capacity for $550 million. With this sale, Con
Edison has sold an aggregate of approximately 6,300 MW of its approximately
8,300 MW of electric generating capacity (including all of its New York City
fossil-fueled electric generating capacity) for an aggregate of approximately
$1.8 billion. See discussion of previous sales under "PSC Settlement Agreement"
in Note A. Upon completion of the sales, which will result in an estimated net
after-tax gain of approximately $384 million, Con Edison will have offset
approximately $295 million of the potential $300 million disallowance of NUG
costs (including an approximately $115 million offset for NUG contract
mitigation). See Note G.



<PAGE>
 
                                      -62-

                                                                      SCHEDULE 1


          CONDENSED FINANCIAL INFORMATION OF CONSOLIDATED EDISON, INC.
                (Thousands of Dollars, except per share amounts)

                             CONDENSED BALANCE SHEET
                              At December 31, 1998

Assets

Current assets
            Cash and temporary cash investments                       $   47,126
            Other current assets                                          10,911
            Total current assets                                          58,037

Investments in subsidiaries                                            6,084,214

            Total Assets                                              $6,142,251

Capitalization and Liabilities

Stockholders' Equity
            Common stock                                              $1,436,696
            Retained earnings                                          4,700,357
            Total stockholders' equity                                 6,137,053

Current Liabilities
            Dividends payable                                              3,744
            Other current liabilities                                      1,432
            Total current liabilities                                      5,176

 Noncurrent Liabilities                                                       22

            Total Liabilities                                              5,198

Total Capitalization and Liabilities                                  $6,142,251


<PAGE>
 
                                      -63-


                                                                      SCHEDULE I
                                                                     (Continued)

          CONDENSED FINANCIAL INFORMATION OF CONSOLIDATED EDISON, INC.
                (Thousands of Dollars, except per share amounts)

                           CONDENSED INCOME STATEMENT
                      For the year ended December 31, 1998

Equity in earnings of subsidiaries                                    $ 709,700

Operating expenses                                                         (140)

Other income, net of taxes                                                3,182

Net Income                                                            $ 712,742

Average number of shares outstanding (in thousands)                     234,308

Basic and diluted earnings per common share                           $    3.04

                        CONDENSED STATEMENT OF CASH FLOWS
                      For the year ended December 31, 1998

Net income                                                            $ 712,742
Dividends received from Consolidated Edison Co. of New York, Inc.       496,945
Other - net                                                            (917,506)
Net cash flows from operating activities                                292,181

Financing activities
             Common stock dividends                                    (493,201)
             Corporate restructuring to establish holding company       198,362
             Contributions to subsidiaries                              (59,095)
Net cash flows from financing activities                               (353,934)

Net decrease in cash and temporary cash investments                   $ (61,753)

Cash and temporary cash investments at January 1, 1998                $ 108,879

Cash and temporary cash investments at December 31, 1998              $  47,126


<PAGE>
 
                                      -64-


                                                                     SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996

                             (Thousands of Dollars)


<TABLE>
<CAPTION>
            COLUMN A                COLUMN B           COLUMN C           COLUMN D        COLUMN E
                                                      Additions
                                                   (1)          (2)
                                    Balance at  Charged to  Charged to                     Balance
                                    Beginning   Costs and   Other                          At End
Company     Description             of Period   Expenses    Accounts       Deductions**    of Period
<S>         <C>                     <C>         <C>         <C>            <C>             <C>
CEI         Allowance for
            uncollectible
            accounts*:

                        1998        $ 21,600    $ 30,983        --         $ 27,626       $ 24,957
                        1997        $ 21,600    $ 30,936        --         $ 30,936       $ 21,600
                        1996        $ 21,600    $ 30,771        --         $ 30,771       $ 21,600
                                                                                         
Con Edison  Allowance for                                                                
            uncollectible                                                                
            accounts*:                                                                   
                                                                                         
                        1998        $ 21,600    $ 28,626        --         $ 27,626       $ 22,600
                        1997        $ 21,600    $ 30,936        --         $ 30,936       $ 21,600
                        1996        $ 21,600    $ 30,771        --         $ 30,771       $ 21,600
</TABLE>

----------
*     This is a valuation account deducted in the balance sheet from the assets
      (Accounts receivable -customer) to which they apply.
**    Accounts written off less cash collections, miscellaneous adjustments and
      amounts reinstated as receivables previously written off.


<PAGE>
 
                                      -65-


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      NONE.

                                    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

      Information required by Part III is incorporated by reference from CEI's
and Con Edison's definitive joint proxy statement for their Annual Meetings of
Stockholders to be held on May 17, 1999. The joint proxy statement is to be
filed pursuant to Regulation 14A not later than 120 days after December 31,
1998, the close of the fiscal year covered by this report.

      In accordance with General Instruction G(3) to Form 10-K, other
information regarding CEI and Con Edison's Executive Officers may be found in
Part I of this report under the caption "Executive Officers of the Registrant."

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1. List of Financial Statements

CEI Consolidated Balance Sheet at December 31, 1998 and 1997
CEI Consolidated Income Statement for the years ended December 31,
     1998, 1997 and 1996 
CEI Consolidated Statement of Retained Earnings for the years ended 
     December 31, 1998, 1997 and 1996
CEI Consolidated Statement of Cash Flows for the years ended  December 31, 
     1998, 1997 and 1996

Con Edison Consolidated Balance Sheet at December 31, 1998 and 1997
Con Edison Consolidated Income Statement for the years ended
December 31, 1998, 1997 and 1996 Con Edison Consolidated Statement
     of Retained Earnings for the years ended December 31, 1998, 1997 Con
Edison Consolidated Statement of Cash Flows for the years ended
     December 31, 1998, 1997 and 1996
Con Edison Consolidated Statement of Capitalization at December 31, 1998
     and 1997 and 1996

CEI and Con Edison Notes to Consolidated Financial Statements

2. List of Financial Statement Schedules

Schedule I - Condensed financial information of CEI 
Schedule II - Valuation and qualifying accounts of CEI and Con Edison


<PAGE>
 
                                      -66-


3. List of Exhibits

      3.1.1   Restated Certificate of Incorporation of Consolidated Edison, Inc.
              ("CEI") (Designated in the Registration Statement on Form S-4 of
              CEI (No. 333- 39164) as Exhibit 3.1.)

      3.1.2.1 Restated Certificate of Incorporation of Consolidated
              Edison Company of New York, Inc. ("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 for
              the year ended December 31, 1989 (File No. 1-1217) as Exhibit
              3(a).)

      3.1.2.2 The following certificates of amendment of Restated
              Certificate of Incorporation of Con Edison filed with the
              Department of State of the State of New York, which are designated
              as follows:

                                       Securities Exchange Act
              Date Filed With       File No. 1-1217
              Department of State   Form        Date        Exhibit

              5/16/88               10-K        12/31/89    3(b)
              6/2/89                10-K        12/31/89    3(c)
              4/28/92               8-K         4/24/92     4(d)
              8/21/92               8-K         8/20/92     4(e)

      3.1.2.3 Certificate of Amendment of Restated Certificate of Incorporation
              of Con Edison filed with the Department of State of the State of
              New York on February 18, 1998. (Designated in Con Edison's Annual
              Report on Form 10-K for the year ended December 31, 1997 (File No.
              1-1217) as Exhibit 3.1.2.3.)

      3.2.1   By-laws of CEI, effective as of June 23, 1998. (Designated in
              CEI's Quarterly Report on Form 10-Q for the quarterly period ended
              June 30, 1998 (File No. 1-14514) as Exhibit 3.2.1)

      3.2.2   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 3.2.2)

      4.1     Participation Agreement, dated as of August 15, 1985, between New
              York State Energy Research and Development Authority (NYSERDA) and
              Con Edison. (Designated in Con Edison's Quarterly Report on Form
              10-Q for the quarterly period ended June 30, 1990 (File No.
              1-1217) as Exhibit 4(a)(1).)


<PAGE>
 
                                      -67-


      4.2   The following Supplemental Participation Agreements supplementing
            the Participation Agreement, dated as of August 15, 1985, between
            NYSERDA and Con Edison, which are designated as follows:

                 Supplemental             Securities Exchange Act
                 Participation Agreement       File No. 1-1217
                 Number Date              Form         Date       Exhibit

            1.  Sixth   11/1/89           10-Q          6/30/90   4(a)(7)
            2.  Seventh 7/1/90            10-Q          6/30/90   4(a)(8)
            3.  Eighth  1/1/91            10-K         12/31/90   4(e)(8)
            4.  Ninth   1/15/92           10-K         12/31/91   4(e)(9)

      4.3   Participation Agreement, dated as of December 1, 1992,
            between NYSERDA and Con Edison. (Designated in Con Edison's Annual
            Report on Form 10-K for the year ended December 31, 1992 (File No.
            1-1217) as Exhibit 4(f).)

      4.4   The following Supplemental Participation Agreements
            supplementing the Participation Agreement, dated as of December 1,
            1992, between NYSERDA and Con Edison, which are designated as
            follows:

                 Supplemental             Securities Exchange Act
                 Participation Agreement         File No. 1-1217
                 Number Date              Form        Date        Exhibit

            1.  First   3/15/93           10-Q        6/30/93     4.1
            2.  Second  10/1/93           10-Q        9/30/93     4.3
            3.  Third   12/1/94           10-K        12/31/94    4.7.3
            4.  Fourth  7/1/95            10-Q        6/30/95     4.2

      4.5   Indenture of Trust, dated as of August 15, 1985, between NYSERDA
            and Morgan Guaranty Trust Company of New York, as Trustee (Morgan
            Guaranty). (Designated in Con Edison's Quarterly Report on Form 10-Q
            for the quarterly period ended June 30, 1990 (File No. 1-1217) as
            Exhibit 4(b)(1).)

      4.6   The following Supplemental Indentures of Trust supplementing the
            Indenture of Trust, dated as of August 15, 1985, between NYSERDA and
            Morgan Guaranty.

                 Supplemental         Securities Exchange Act
                 Indenture of Trust          File No. 1-1217
                 Number Date          Form        Date        Exhibit

            1.  Sixth   11/1/89       10-Q        6/30/90     4(b)(7)
            2.  Seventh 7/1/90        10-Q        6/30/90     4(b)(8)
            3.  Eighth  1/1/91        10-K        12/31/90    4(g)(8)
            4.  Ninth   1/15/92       10-K        12/31/91    4(g)(9)

      4.7   Indenture of Trust, dated as of December 1, 1992, between
            NYSERDA and Morgan Guaranty. (Designated in Con Edison's Annual
            Report on Form 10-K for the year ended December 31, 1992 (File No.
            1-1217) as Exhibit 4(i).)


<PAGE>
 
                                      -68-


      4.8   The following Supplemental Indentures of Trust supplementing the
            Indenture of Trust, dated as of December 1, 1992, between NYSERDA
            and Morgan Guaranty.

                Supplemental         Securities Exchange Act
                Indenture of Trust      File No. 1-1217
                Number  Date         Form        Date          Exhibit

            1.  First   3/15/93      10-Q        6/30/93       4.2
            2.  Second  10/1/93      10-Q        9/30/93       4.4
            3.  Third   12/1/94      10-K        12/31/94      4.11.3
            4.  Fourth  7/1/95       10-Q        6/30/95       4.3

      4.9   Indenture, dated as of December 1, 1990, between Con Edison and
            The Chase Manhattan Bank (National Association), as Trustee (the
            "Debenture Indenture"). (Designated in Con Edison's Annual Report on
            Form 10-K for the year ended December 31, 1990 (File No. 1-1217) as
            Exhibit 4(h).)

      4.10  First Supplemental Indenture (to the Debenture Indenture),
            dated as of March 6, 1996, between Con Edison and The Chase
            Manhattan Bank (National Association), as Trustee. (Designated in
            Con Edison's Annual Report on Form 10-K for the year ended December
            31, 1995 (File No. 1-1217) as Exhibit 4.13.)

      4.11  The following forms of Con Edison's Debentures:

                                                        Securities Exchange Act
                                                          File No. 1-1217
                        Debenture              Form    Date             Exhibit
            7 3/8%,  Series 1992 A             8-K     2/5/92             4(a)
            7 5/8%,  Series 1992 B             8-K     2/5/92             4(b)
            7.60%,   Series 1992 C             8-K     2/25/92            4
            6 1/2%,  Series 1992 D             8-K     8/26/92            4(a)
            6 1/2%,  Series 1993 B             8-K     2/4/93             4(a)
            6 5/8%,  Series 1993 C             8-K     2/4/93             4(b)
            6 3/8%,  Series 1993 D             8-K     4/7/93             4
            7 1/2%,  Series 1993 G             8-K      6/7/93            4
            7 1/8%,  Series 1994 A             8-K     2/8/94             4
            Floating Rate Series 1994 B        8-K     6/29/94            4
            6 5/8%,  Series 1995 A             8-K     6/21/95            4
            7 3/4%,  Series 1996 A             8-K     4/24/96            4
            Floating Rate Series 1996 B        8-K     11/25/96           4
            Floating Rate Series 1997 A        8-K     6/17/97            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
            6.15%,  Series 1998 C              8-K     6/22/98            4
            6.90%,  Series 1998 D              8-K     9/24/98            4

      4.12  Form of Con Edison's 7 3/4% Quarterly Income Capital Securities
            (Series A Subordinated Deferrable Interest Debentures). (Designated
            in Con Edison's Current Report on Form 8-K, dated February 29, 1996,
            (File No. 1-1217) as Exhibit 4.)


<PAGE>
 
                                      -69-


     10.1   Amended and Restated Agreement and Settlement, dated September 19,
            1997, between Con Edison and the Staff of the New York State Public
            Service Commission (without Appendices). (Designated in Con Edison's
            Current Report on Form 8-K, dated September 23, 1997, (File No.
            1-1217) as Exhibit 10.)

     10.2.1 Agreement dated as of October 31, 1968 among Central Hudson Gas &
            Electric Corporation, Con Edison and Niagara Mohawk Power
            Corporation. (Designated in Registration Statement No. 2-31884 as
            Exhibit 7.)

     10.2.2 Amendment dated November 23, 1976 to Agreement dated as of
            October 31, 1968 among Central Hudson Gas & Electric Corporation,
            Con Edison and Niagara Mohawk Power Corporation and Additional
            Agreement dated as of November 23, 1976 between Central Hudson and
            Con Edison. (Designated in Con Edison's Annual Report on Form 10-K
            for the year ended December 31, 1991 (File No. 1-1217) as Exhibit
            10(b).)

     10.3.1 General Agreement between O&R and Con Edison dated October
            10, 1969. (Designated in Registration Statement No. 2-35734 as
            Exhibit 7-1.)

     10.3.2 Letters, dated November 18, 1970 and November 23, 1970,
            between O&R and Con Edison pursuant to Article 14(a) of the
            aforesaid General Agreement. (Designated in Registration Statement
            No. 2-38807 as Exhibit 5-3.)

     10.4.1 Planning and Supply Agreement, dated March 10, 1989, between
            Con Edison and the Power Authority of the State of New York.
            (Designated in Con Edison's Annual Report on Form 10-K for the year
            ended December 31, 1992 (File No. 1-1217) as Exhibit 10(gg).)

     10.4.2 Delivery Service Agreement, dated March 10, 1989, between Con
            Edison and the Power Authority of the State of New York. (Designated
            in Con Edison's Annual Report on Form 10-K for the year ended
            December 31, 1992 (File No. 1-1217) as Exhibit 10(hh).)

     10.5.1 Employment Contract, dated May 22, 1990, between Con Edison
            and Eugene R. McGrath. (Designated in Con Edison's Quarterly Report
            on Form 10-Q for the quarterly period ended June 30, 1990 (File No.
            1-1217) as Exhibit 10.)

     10.5.2 The following amendments to Employment Contract, dated May
            22, 1990, between Con Edison and Eugene R. McGrath:

              Amendment              Securities Exchange Act File No. 1-1217
                Date                     Form        Date             Exhibit
                8/27/91                  10-Q        9/30/91          19
                8/25/92                  10-Q        9/30/92          19
                2/18/93                  10-K        12/31/92         10(o)
                8/24/93                  10-Q        9/30/93          10.1
                8/24/94                  10-Q        9/30/94          10.1
                8/22/95                  10-Q        9/30/95          10.3
                7/23/96                  10-Q        6/30-96          10.2
                7/22/97                  10-Q        6/30/97          10
                7/28/98                   8-K        9/24/98          10


<PAGE>
 
                                      -70-


      10.6.1 Employment Agreement, dated June 25, 1991, between Con Edison and
             J. Michael Evans. (Designated in Con Edison's Quarterly Report on
             Form 10-Q for the quarterly period ended June 30, 1991 (File No.
             1-1217) as Exhibit 19.)

      10.6.2 Amendment, dated March 29, 1993, to Employment Agreement,
             dated June 25, 1991, between Con Edison and J. Michael Evans.
             (Designated in Con Edison's Quarterly Report on Form 10-Q for the
             quarterly period ended March 31, 1993 (File No. 1-1217) as Exhibit
             10.)

      10.6.3 Amendment, dated November 8, 1993, to Employment Agreement,
             dated June 25, 1991, between Con Edison and J. Michael Evans.
             (Designated in Con Edison's Quarterly Report on Form 10-Q for the
             quarterly period ended September 30, 1993 (File No. 1-1217) as
             Exhibit 10.2.)

      10.7   Agreement and Plan of Exchange, entered into on October 28, 1997,
             between CEI and Con Edison. (Designated in the Registration
             Statement on Form S-4 of CEI (No. 333-39164) as Exhibit 2.)

      *10.8 The Consolidated Edison Company of New York, Inc. Executive
             Incentive Plan, amended and restated as of April 1, 1999.

      10.9.1 The Consolidated Edison Retirement Plan for Management
             Employees, as amended and restated. (Designated in Con Edison's
             Quarterly Report on Form 10-Q for the quarterly period ended
             September 30, 1995 (File No. 1-1217) as Exhibit 10.1.)

      10.9.2 The following amendments to the Consolidated Edison
             Retirement Plan for Management Employees.

                                    Securities Exchange Act
             Amendment                 File No. 1-1217
               Date               Form        Date        Exhibit
             12/29/95             10-K        12/31/95    10.29
             7/1/96               10-K        12/31/96    10.22
             6/1/97               10-K        12/31/97    10.11.3
             11/14/97             10-K        12/31/97    10.11.4

     *10.9.3 Amendment No. 5, dated December 30, 1998, to the
             Consolidated Edison Retirement Plan for Management Employees.


<PAGE>
 
                                      -71-


     *10.10 Consolidated Edison Company of New York, Inc Supplemental
            Retirement Income Plan, as amended and restated as of April 1, 1999.

      10.11.1 Consolidated Edison Company of New York, Inc. Retirement
            Plan for Trustees, effective as of July 1, 1988. (Designated in Con
            Edison's Annual Report on Form 10-K for the year ended December 31,
            1992 (File No. 1-1217) as Exhibit 10(ee).)

      10.11.2 Amendment No. 1, dated September 28, 1990, to the
            Consolidated Edison Company of New York, Inc. Retirement Plan for
            Trustees. (Designated in Con Edison's Quarterly Report on Form 10-Q
            for the quarterly period ended September 30, 1990 (File No. 1-1217)
            as Exhibit 19(c).)

      10.12 The Con Edison Thrift Savings Plan for Management Employees
            and Tax Reduction Act Stock Ownership Plan, as amended and restated.
            (Designated in Con Edison's Annual Report on Form 10-K for the year
            ended December 31, 1996 (File No. 1-1217) as Exhibit 10.5.)

      10.13 Deferred Compensation Plan for the Benefit of Trustees of Con
            Edison, 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's Annual Report on Form 10-K for the year ended December
            31, 1991 (File No. 1-1217) as Exhibit 10(i).)

      10.14 Supplemental Medical Plan for the Benefit of Con Edison's
            officers. (Designated in Con Edison's Annual Report on Form 10-K for
            the year ended December 31, 1991 (File No. 1-1217) as Exhibit
            10(aa).)

     10.15.1 The Con Edison Discount Stock Purchase Plan. (Designated in
            Con Edison's Annual Report on Form 10-K for the year ended December
            31, 1991 (File No. 1-1217) as Exhibit 10(bb).)

     10.15.2 Amendment, dated December 29, 1995, to the Con Edison
            Discount Stock Purchase Plan. (Designated in Con Edison's Annual
            Report on Form 10-K for the year ended December 31, 1995 (File No.
            1-1217) as Exhibit 10.38.)

     10.16.1 The Consolidated Edison Retiree Health Program for
            Management Employees, effective as of January 1, 1993. (Designated
            in Con Edison's Annual Report on Form 10-K for the year ended
            December 31, 1992 (File No. 1-1217) as Exhibit 10(ll).)


<PAGE>
 
                                      -72-


      10.16.2 The following amendments to the Consolidated Edison Retiree Health
              Program for Management Employees.

                                        Securities Exchange Act
              Amendment                     File No. 1-1217
                Date                 Form        Date        Exhibit
              10/31/94               10-Q        9/30/94     10.3
              12/28/94               10-K        12/31/95    10.44
              12/29/95               10-K        12/31/95    10.45
              7/1/96                 10-K        12/31/96    10.39
              11/14/97               10-K        12/31/97    10.18.3

     *10.16.3 Amendment No. 6, dated December 30, 1998, to the Consolidated
              Edison Retiree Health Program for Management Employees.

      10.17   The Con Edison Severance Pay Plan for Management Employees.
              (Designated in Con Edison's Quarterly Report on Form 10-Q for the
              quarterly period ended September 30, 1997 (File No. 1-1217) as
              Exhibit 10.)

      10.18   CEI 1996 Stock Option Plan, as amended and restated effective
              February 24, 1998. (Designated in Con Edison's Annual Report on
              Form 10-K for the year ended December 31, 1997 (File No. 1-1217)
              as Exhibit 10.20.)

      *10.19  The Consolidated Edison Company of New York, Inc. Deferred Income
              Plan, as amended and restated as of April 1, 1999.

      *10.20  The Consolidated Edison, Inc. Restricted Stock Plan for
              Non-Employee Directors, effective October 1, 1998.

      *10.21  Generating Plant (Ravenswood) and Gas Turbine Asset Purchase and
              Sale Agreement, dated January 28, 1999, by and between Con Edison
              and Marketspan Corporation (doing business as KeySpan Energy).

      *10.22  Generating Plant (Arthur Kill) and Gas Turbine Asset Purchase and
              Sale Agreement, dated January 27, 1999, by and between Con Edison
              and NRG Energy, Inc.

      *10.23  Generating Plant (Astoria) and Gas Turbine Asset Purchase and Sale
              Agreement, dated March 2, 1999, by and between Con Edison and
              Astoria Generating Company, L.P.

      *12.1   CEI Statement of computation of ratio of earnings to fixed charges
              for the years ended December 31, 1998, 1997, 1996, 1995 and 1994.

      *12.2   Con Edison Statement of computation of ratio of earnings to fixed
              charges for the years ended December 31, 1998, 1997, 1996, 1995
              and 1994.

      21      Subsidiaries of CEI and Con Edison. (Incorporated by reference
              from Form U-3A- 2 of CEI, dated February 26, 1999 - File No:
              069-00425.)


<PAGE>
 
                                      -73-


      *23   Consent of PricewaterhouseCoopers LLP.

      *24 Powers of Attorney of each of the persons signing this report by
            attorney-in-fact.

      *27.1 CEI Financial Data Schedule. (To the extent provided in Rule
            402 of Regulation S-T, this exhibit shall not be deemed "filed", or
            otherwise subject to liabilities, or be deemed part of a
            registration statement.)

      *27.2 Con Edison Financial Data Schedule. (To the extent provided in
            Rule 402 of Regulation S-T, this exhibit shall not be deemed
            "filed", or otherwise subject to liabilities, or be deemed part of a
            registration statement.)


Exhibits listed above which have been filed 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 above, are hereby incorporated
by reference and made a part of this report with the same effect as if filed
with the report. 

----------
* Filed herewith

(b)   Reports on Form 8-K:

      Neither CEI nor Con Edison filed any Current Reports on Form 8-K during
the quarter ended December 31, 1998 or, through the date of this filing, in
1999.


<PAGE>
 
                                      -74-


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, each Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    CONSOLIDATED EDISON, INC.

                                    CONSOLIDATED EDISON COMPANY
                                         OF NEW YORK, INC.


                                    By          JOAN S. FREILICH
                                                Joan S. Freilich
                                                Executive Vice President
                                                     and Chief Financial Officer
Date: March 29, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of each Registrant and
in the capacities and on the dates indicated.

Date             Signature                Title (CEI and Con Edison,
                                             unless otherwise noted)

March 29, 1999   Eugene R. McGrath*       Chairman of the Board,
                                             President, Chief Executive
                                           Officer and Director of CEI;
                                            Chairman of the Board,
                                             Chief Executive Officer and Trustee
                                              of Con Edison
                                           (Principal Executive Officer)

March 29, 1999   Joan S. Freilich*        Executive Vice President,
                                             Chief Financial Officer and
                                            Director (Trustee)
                                           (Principal Financial Officer)

March 29, 1999   Hyman Schoenblum*        Vice President, Controller
                                            and Chief Accounting Officer
                                           (Principal Accounting Officer)

                 E. Virgil Conway*        Director (Trustee)
                 Gordon J. Davis*         Director (Trustee)
                 Ruth M. Davis*           Director (Trustee)
                 Ellen V. Futter*         Director (Trustee)
                 Sally Hernandez-Pinero*  Director (Trustee)
                 Peter W. Likins*         Director (Trustee)
                 Robert G. Schwartz*      Director (Trustee)
                 Richard A. Voell*        Director (Trustee)
                 Stephen R. Volk*         Director (Trustee)

March 29, 1999   *By   JOAN S. FREILICH   Attorney-in-Fact
                       Joan S. Freilich