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, 1997

                                      OR

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

         For the transition period from ____________ to ____________

Commission    Exact name of registrant as     State of       I.R.S. Employer
File Number   specified in its charter        Incorporation  ID. Number  
              and principal office address 
              and telephone number
    

1-4514        Consolidated Edison, Inc.       New York       13-3965100
              4 Irving Place, New York, 
              New York 10003
              (212) 460-3900

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


Securities Registered Pursuant to Section 12(b) of the Act:
                                                         Name of each exchange
Title of each class                                      on which registered

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


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 [ ]



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                                    - 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. [ ]

      The  aggregate  market value of the voting stock of  Consolidated  Edison,
Inc. ("CEI") held by  non-affiliates  of CEI , as of January 31, 1998, was $ 9.7
billion. Not reflected in this amount are the 62,915 CEI Common Shares ($.10 par
value) held by CEI's  Directors who are the only  stockholders  of CEI, known to
CEI, who might be deemed  "affiliates"  of CEI. As of February 28, 1998, CEI had
outstanding 235,489,650 Common Shares ($.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, 1998, was $153.7 million. Not reflected in this amount are the
235,489,650  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 the joint CEI and Con Edison Proxy  Statement  for their joint
1998 Annual Meetings of Stockholders,  to be filed with the Commission  pursuant
to  Regulation  14A not  later  than 120  days  after  December  31,  1997,  are
incorporated in Part III of this report.


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                                    - 3 -


                              TABLE OF CONTENTS


                                                                         Page

FILING FORMAT                                                              4

FORWARD-LOOKING STATEMENTS                                                 4

PART I

ITEM 1.         Business                                                   4
ITEM 2.         Properties                                                17
ITEM 3.         Legal Proceedings                                         19
ITEM 4.         Submission of Matters to a Vote of Security Holders       26

Executive Officers of the Registrant                                      27


PART II

ITEM 5. Market for the Registrant's Common Equity and Related 
        Stockholder Matters                                               31
ITEM 6. Selected Financial Data                                           31
ITEM 7. Management's Discussion and Analysis of
        Financial Condition and Results of Operations                     32
ITEM 7A . Quantitative and Qualitative Disclosure About Market Risk       42
ITEM 8. Financial Statements and Supplementary Data                       42
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 64


SIGNATURES                                                                72

-------------------
*Incorporated by reference from the definitive joint proxy statement for CEI and
Con Edison's Annual Meetings of Stockholders to be held on May 18, 1998.



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                                    - 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
INDUSTRY SEGMENTS                                                           5
ELECTRIC OPERATIONS                                                         5
GAS OPERATIONS                                                              8
STEAM OPERATIONS                                                            9
COMPETITIVE BUSINESSES AND COMPETITION                                      9
CAPITAL REQUIREMENTS AND FINANCING                                         10
FUEL SUPPLY                                                                10
REGULATION AND RATES                                                       12
ENVIRONMENTAL MATTERS AND RELATED LEGAL PROCEEDINGS                        13
GENERAL                                                                    14
EMPLOYEES                                                                  14
RESEARCH AND DEVELOPMENT                                                   14
OPERATING STATISTICS                                                       15


CORPORATE STRUCTURE

      CEI,  incorporated  in New York State in 1997,  became the holding company
for Con Edison on January 1, 1998. See Item 4. CEI has other subsidiaries.
See "Competitive Businesses and Competition," below.

      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.  By not later
than December 31, 2001 all of Con Edison's  electric  customers will be eligible
to purchase electricity from suppliers other than Con Edison. Since 1996, all of
Con  Edison's  gas  customers  have been  eligible,  either  individually  or by
aggregating  their demand with other  customers,  to purchase gas from suppliers
other than Con Edison.  See "Liquidity and Capital  Resources - Competition  and
Industry Restructuring and PSC Settlement Agreement " in Item 7 and "Challenges
to Settlement Agreement" in Item 3.




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                                    - 5 -


INDUSTRY SEGMENTS

      In 1997,  electric,  gas and steam  operating  revenues were 79.1 percent,
15.4 percent and 5.5 percent,  respectively, of Con Edison's operating revenues.
For information on operating  revenues,  expenses and income for the years ended
December 31,  1997,  1996 and 1995,  and assets at those dates,  relating to Con
Edison's  electric,  gas  and  steam  operations,  see  Note J to the  financial
statements in Item 8. For information  about changes to the Company's  business,
see "Liquidity and Capital  Resources - Competition  and Industry  Restructuring
and  PSC  Settlement  Agreement"  in  Item  7, "Challenges to Settlement 
Agreement" in Item 3 and  "Competitive  Businesses  and Competition," below.

ELECTRIC OPERATIONS

      ELECTRIC SALES.  Electric  operating revenues were $5.6 billion in 1997 or
79.1 percent of Con Edison's operating  revenues.  The percentages were 79.6 and
82.5,  respectively,  in the  two  preceding  years.  Electricity  sales  in Con
Edison's  service area in 1997,  including usage by customers served by NYPA and
the New York  City and  Westchester  County  municipal  electric  agencies,  but
excluding  off-system  sales,  increased 1.1 percent from 1996, after increasing
0.8 percent and 0.7 percent,  respectively,  in the two preceding  years.  After
adjusting for  variations,  principally  weather and billing  days,  electricity
sales volume  increased 1.8 percent in 1997, 0.9 percent in 1996 and 1.2 percent
in 1995.  Weather-adjusted  sales  represent Con Edison's  estimate of the sales
that would have been made if historical average weather conditions had occurred.

      In 1997, 79.6 percent of the electricity delivered in Con Edison's service
area was sold by Con Edison to its  customers,  and the balance was delivered to
customers of NYPA and municipal electric  agencies.  Of Con Edison's sales, 29.3
percent was to residential customers,  66.9 percent was to commercial customers,
2.1 percent was to  industrial  customers  and the balance was to railroads  and
public authorities.

      For  further  information  about  amounts of  electric  energy  sold,  see
"Operating Statistics," below.

      For information  about changes to Con Edison's  electric  operations,  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.

      The sources of electric  energy  generated and purchased  during the years
1993-1997 are shown below:

                         1993         1994        1995        1996        1997

Generated:
Fossil-Fueled*           35.5%       30.9%       30.1%       22.7%       29.6%
Nuclear (Indian Point 2) 14.8%       18.4%       10.8%       17.7%        7.3%
Total Generated          50.3%       49.3%       40.9%       40.4%       36.9%

Firm Purchases:
 NYPA                     6.0%        1.3%        1.3%        2.0%        2.1%
 Hydro-Quebec             4.3%        4.8%        5.8%        6.0%        2.4%
 Non-Utility Generators  11.9%       12.9%       29.9%       29.5%       35.9%
Other Purchases*         27.5%       31.7%       22.1%       22.1%       22.7%
Total Purchased          49.7%       50.7%       59.1%       59.6%       63.1%

Generated & Purchased     100%        100%        100%        100%        100%
-----
*  For 1995 - 1997, includes electricity generated for others. See "Gas
Conversions" and "Operating Statistics", below.


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                                    - 6 -

      For further  information  about amounts of electric  energy  generated and
purchased, see "Operating Statistics," below. For information about Con Edison's
purchases  of  electric  energy,   see  "NYPA,"   "Hydro-Quebec,"   "Non-Utility
Generators," "New York Power Pool" and "Gas Conversions," below.

       For information  about changes to Con Edison's electric  operations,  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 15, 1997,
the one-hour peak load was 11,013  thousand  kilowatts  (MW) which is the record
peak load for the service area.  The 1997 peak load included an estimated  9,350
MW for Con  Edison's  customers  and 1,663 for NYPA's  customers  and  municipal
electric  agency  customers.  The 1997 peak,  if adjusted to  historical  design
weather  conditions,  would have been  11,200 MW, 250 MW higher than the peak in
1996 when similarly  adjusted.  Con Edison  estimates that, under design weather
conditions,  the 1998 service peak load would be 11,375 MW,  including  9,610 MW
for Con  Edison's  customers.  "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 1997 totaled (before  outages) 13,967 MW, of
which 10,234 MW represented  net available  generating  capacity  (including the
capacity of NYPA's  Poletti and Indian  Point 3 units) and 3,733 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 1998.
For information about Con Edison's capacity reserve margin,  see "New York Power
Pool," below.

      For  information   about  Con  Edison's   generating,   transmission   and
distribution facilities, see "Electric Facilities" in Item 2.

      For information about to changes to Con Edison's electric operations,  see
"Changes," below.

      CHANGES. For information about changes to Con Edison's electric operations
resulting from a transition to a competitive electric market, see "Liquidity and
Capital  Resources - Competition and Industry  Restructuring  and PSC Settlement
Agreement" in Item 7,  "Electric  Facilities - Generating  Facilities" in Item 2
and "Challenges to Settlement Agreement" in Item 3.

      Pursuant  to  a  September  1997  settlement  agreement  (the  "Settlement
Agreement") in the "Competitive  Opportunities" proceeding of the New York State
Public  Service  Commission  ("PSC"),  all of Con  Edison's  customers  will  be
eligible to purchase electricity from other suppliers, including subsidiaries of
CEI other than Con Edison, by December 31, 2001. Con Edison remains obligated to
serve as the "provider of last resort" for customers that, for whatever  reason,
do not have  another  supplier  of  electricity.  In a plan to  divest  electric
generating capacity submitted to the PSC in March 1998 (see "Electric Facilities
- Generating  Facilities" in Item 2), Con Edison proposed to meet its continuing
obligations to supply  electricity  following  divestiture  through purchases of
electricity  in a  competitive  wholesale  market.  To  assure  adequate  supply
resources prior to the development of that market, Con Edison proposed,  through
2002,  to make  short-term  capacity  purchases and to obtain  commitments  from
purchasers of Con Edison's divested capacity to make capacity available.

      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.   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 NYPA to purchase, through a
contract between NYPA and  Hydro-Quebec (a  government-owned  Canadian  electric
utility),  780 MW of firm  power and  energy  during  the  months of April  1998
through  October  1998 (the  "Diversity  Contract").  The  amount and price of a
"basic  amount" of energy  Con  Edison is  entitled  to  purchase  is subject to
negotiation  with  Hydro-Quebec  and  approval by the  National  Energy Board of
Canada  (a  Canadian  regulatory  agency).  In  accordance  with  the  Diversity
Contract,  Con  Edison can also  purchase  additional  energy  which it would be
obligated to return to Hydro-Quebec by April 1999.  Hydro-Quebec  and Con Edison
have agreed to extend the Diversity Contract on substantially the same terms for
400 MW of firm power and energy during the April-through-October periods of 1999
through 2003.


      NON-UTILITY   GENERATORS.   Federal   and  state   regulations   encourage
competition in the market for generation of electric power. These laws generally
require  electric  utilities to purchase  electric  power from and sell electric
power to qualifying  NUGs. The Federal Energy  Regulatory  Commission has issued
rules requiring utilities to purchase electricity from qualifying  facilities at
a price equal to the purchasing  utility's "avoided cost." For information about
Con  Edison's  contracts  with NUGs,  see  "Liquidity  and  Capital  Resources -
Competition and Industry  Restructuring and 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 1997  and  expects  to  meet  it in  1998.  For  information  about a plan to
restructure the wholesale  electric market in New York State, see "Liquidity and
Capital Resources - Competition and Industry Restructuring" 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 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 CONVERSIONS.  Con Edison has, for a fee, generated electric energy 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 has  purchased a  substantial  portion of this energy for sale to its
customers. See "Operating Statistics," below.



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                                    - 8 -

GAS OPERATIONS


      GAS  SALES.  Gas  operating  revenues  in 1997 were $1.1  billion  or 15.4
percent of Con Edison's operating revenues.  The percentages were 14.6 and 12.4,
respectively, in the two preceding years.

      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.  Con Edison  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.

      Gas sales volume to firm customers  decreased 6.2 percent in 1997 from the
1996 level. After adjusting for variations,  principally weather, firm gas sales
volume  to  these   customers   decreased  0.8  percent.   Including   sales  to
interruptible  and  off-system  customers,  actual  sales volume  increased  0.1
percent in 1997.  Transportation  of  customer-owned  gas (other than for NYPA),
which  comprised  approximately  5.4  percent of the gas Con  Edison  sold to or
transported for customers in 1997,  increased 68.9 percent in 1997. Net revenues
from off-system sales  transactions  (such as releases of pipeline  capacity and
bundled  sales  of gas and  ancillary  services)  were  $15.2  million  in 1997,
compared to $14.4 million in 1996.

      In  September  1997,  the  PSC  issued  for  comment  a PSC  staff  report
recommending that all New York State gas utilities terminate their gas supply or
"merchant" functions within five years. The PSC is expected to issue an order in
1998  addressing  the  PSC  staff's   recommendation   and  the  stranded  cost,
reliability and provider of last resort issues that it raises.

      For  information  about  Con  Edison's  current  gas rate  agreement,  see
"Liquidity and Capital Resources - Gas and Steam Rate Agreements" in Item 7. For
Information  about Con Edison's gas facilities,  see "Gas Facilities" in Item 2.
For  information on the quantities of gas sold,  transported for others and used
by Con Edison as boiler fuel to generate  electricity and steam,  see "Operating
Statistics" and "Fuel Supply," 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,  together with the minimum amount
essential for its electric and steam  systems,  would amount to 71,100  thousand
dekatherms  (mdth) of gas during the 1997/98  winter heating season and that gas
available to Con Edison would amount to 92,400 mdth. For the 1998/99 winter, Con
Edison estimates that the requirements would amount to approximately 70,911 mdth
and that the gas  available to Con Edison would amount to  approximately  92,400
mdth. As of March 15, 1998, the 1997/98 winter peak day sendout to Con Edison 's
customers was 665 mdth,  which occurred on March 12, 1998. Con Edison  estimates
that,  under the design  criteria,  the peak day requirements for firm customers
during the 1998/99  winter  season  would amount to  approximately  858 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 seventeen 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 1998.



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                                       - 9 -


STEAM OPERATIONS

      STEAM SALES.  Con Edison  sells steam in  Manhattan  south of 96th Street,
mostly to large office buildings, apartment houses and hospitals. In 1997, steam
operating  revenues were $391.8 million or 5.5 percent of Con Edison's operating
revenues. The percentages were 5.8 and 5.1,  respectively,  in the two preceding
years.  Steam sales  volume  decreased  8.6 percent in 1997 from the 1996 level.
After adjusting for variations,  principally weather,  steam sales decreased 1.0
percent.  For information  about Con Edison's current steam rate agreement,  see
"Liquidity and Capital Resources - Gas and Steam Rate Agreements" in Item 7.

      STEAM  SUPPLY.  38.8  percent  of the steam sold by Con Edison in 1997 was
produced in Con Edison's electric generating  stations,  where it is first used
to generate  electricity.  16.0  percent of the steam sold by Con Edison in 1997
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 1997/98  (through  March 15, 1998) occurred on March 12, 1998 when the
load reached 8.5 million  pounds.  Con Edison  estimates  that for the winter of
1998/99  the peak  demand of its steam  customers  would be  approximately  12.3
million pounds per hour under design criteria, which assume severe weather.

      On December 31, 1997,  the steam system had the  capability  of delivering
about 13.2  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 13.2 million pounds of
steam per hour in the 1998/99 winter.

COMPETITIVE BUSINESSES AND COMPETITION

      CEI has  subsidiaries  other than Con  Edison.  These  other  subsidiaries
engage in  competitive  businesses  and may  encounter  different,  and  perhaps
greater,  risks than those  involved  in the  utility  business  of Con  Edison.
Consolidated Edison Solutions,  Inc. ("Con Edison Solutions"),  formerly ProMark
Energy,  Inc., is a full-service  energy company providing  wholesale and retail
electricity  and  natural  gas sales,  as well as  energy-related  products  and
services.  Consolidated  Edison  Development,  Inc. ("Con Edison  Development"),
formerly  Gramercy   Development,   Inc.,   invests  in  energy   infrastructure
development projects and markets technical services worldwide.  CEI's investment
in Con Edison  Development  and Con Edison  Solutions  was  approximately  $92.1
million as of December 31, 1997.  Start-up  and  business  development  expenses
resulted  in a net  after-tax  loss of  approximately  $9.6  million  for  these
subsidiaries in 1997. Consolidated Edison Energy, Inc. ("Con Edison Energy") and
Consolidated Edison Communications,  Inc. ("Con Edison Communications") recently
commenced  operations.  Con Edison Energy is expected to invest in,  operate and
market the output of , electric  energy  supply  facilities in the United States
and provide  specialized  wholesale  energy  services in the electric  power and
natural gas  markets.  Con Edison  Communications  is  expected  to own,  lease,
operate or invest in facilities used for telecommunications or otherwise compete
in the  telecommunications  industry.  CEI may establish other subsidiaries from
time to  time.  CEI  expects  to  invest  $300  million  in 1998 and 1999 in its
subsidiaries other than Con Edison.

      See   "Liquidity  and  Capital   Resources  -  Competition   and  Industry
Restructuring" in Item 7.



<PAGE>


                                       - 10 -

CAPITAL REQUIREMENTS AND FINANCING

      For information  about the Company's  capital  requirements and financing,
the refunding of certain  securities and Con Edison's  securities  ratings,  see
"Liquidity and Capital Resources" in Item 7. In March 1998, the PSC approved the
$1  billion  repurchase  of CEI Common  Shares  ($.10 par  value)  discussed  in
"Liquidity and Capital Resources - Stock Repurchase" 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.

FUEL SUPPLY


      GENERAL. In 1997, 22.7 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  77.3  percent,  which was either  obtained
through firm  purchases  of energy or  generated by Con Edison,  oil was used to
generate 7.6 percent of the electricity, natural gas 57.9 percent, nuclear power
8.5 percent,  hydroelectric power 2.4 percent,  and refuse 0.9 percent. In 1997,
Con Edison used oil to produce 44.0 percent, and gas to produce 40.0 percent, of
the steam  supplied to Con Edison's  customers.  The remaining  16.0 percent was
purchased  by Con  Edison  from a NUG.  For  information  about  changes  to Con
Edison's electric operations, see "Electric Operations - Changes," above.

      A  comparison  of the cost,  in cents per million Btu, of fuel used by Con
Edison to generate  electricity and steam (excluding  electricity  generated for
others as described under "Gas  Conversions,"  above) during the years 1993-1997
is shown below:

                  1993        1994        1995        1996        1997
Residual Oil       352         316         316         441         416
Distillate Oil     499         467         399         465         490
Natural Gas        288         255         253         324         307
Nuclear             37          42          51          50          51
Weighted Average   243         206         223         255         292

      Con  Edison is  prohibited  from using  fuels  that do not  conform to the
requirements  of the New York State air pollution  control code and, in the case
of its in-City  plants,  the New York City air  pollution  control  code. In the
City,  Con Edison is not  permitted  to burn coal or to burn  residual  fuel oil
having a sulfur content of more than 0.3 percent.


      RESIDUAL OIL. Based on anticipated  consumption  rates,  Con Edison has an
adequate  supply  of  residual  fuel  oil for its  generating  stations  and Con
Edison's shares of generating capacity at the Roseton and Bowline Point stations
jointly-owned  by Con Edison and other utilities.  See "Electric  Facilities" in
Item 2. Oil consumption rates vary widely from month to month. The oil burned at
Con Edison  facilities  in 1997,  including  Con Edison's  shares of  generating
capacity at Roseton and Bowline Point,  totaled 8.2 million barrels.  Con Edison
has  contracts  for oil  supply  and  has  options  for  additional  oil  supply
sufficient  to cover all of its expected  requirements  for residual oil through
September  1998.  Con  Edison  anticipates  covering  the  balance  of its  1998
requirements  through new contracts,  exercise of existing  contract options and
purchases on the spot market.


      NATURAL GAS. During 1997, Con Edison burned approximately  122,000 mdth of
gas  for  the  production  of  electricity  and  steam,  including  12,400  mdth
attributable  to Con Edison's  share of  generating  capacity at the Roseton and
Bowline Point  stations and 9,700 mdth of gas provided by others.  See "Electric
Operations - Gas  Conversions,"  above.  Con Edison  expects to continue to have
substantial  amounts of gas available in 1998 for the  production of electricity
and steam for its customers.



<PAGE>


                                    - 11 -


      DISTILLATE OIL. Con Edison's  estimated 1998  requirements  for distillate
oil for gas turbine fuel are about  500,000  barrels.  Con Edison  expects to be
able to satisfy these requirements through purchases on the spot market.

      COAL.  Con  Edison  does  not burn  coal.  In  1983,  the New  York  State
Department of  Environmental  Conservation  (DEC) ruled on an application by Con
Edison for permission to convert three electric  generating units,  Ravenswood 3
in Queens and Arthur Kill 2 and 3 on Staten  Island,  to  coal-burning.  The DEC
ruled that Con Edison would be permitted to burn coal at each  location  only if
flue gas  desulfurization  (FGD) systems were  installed.  Con Edison's  studies
showed  that it would not be  economical  to  pursue  coal  conversion  with FGD
systems.

      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 1999 and 2001  refuelings  of Indian Point 2. Con Edison
has contracts covering most of its expected  requirements for conversion for the
2001  refueling.  Arrangements  are  expected  to be  completed  in 1998 for the
additional  conversion required for the expected 2001 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, 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.

      The United  States  Department  of Energy  ("DOE")  has  defaulted  on its
obligations under statute and contracts with Con Edison and other utilities that
required the DOE to start  disposing  of the  utilities'  spent  nuclear fuel no
later  than  January  1998.  The  utilities  are  continuing  to  seek  judicial
enforcement of DOE's statutory and contractual obligations. Con Edison estimates
that it has  adequate  on-site  capacity  until 2005 for interim  storage of its
spent nuclear fuel and that,  absent  regulatory or technological  developments,
additional  storage  facilities will then be needed.  If the additional  storage
facilities  were not  available,  Con Edison  would be  required  to curtail the
operation of Indian Point 2.

      Con Edison,  along with other utilities,  is currently  participating in a
private  spent fuel  storage  initiative,  which  seeks to license  and build an
interim,  commercial,  spent nuclear fuel storage facility by 2002. The proposed
site is on the Skull Valley Goshute Indian Reservation in Utah. Each participant
contributed  approximately  $1  million  for  engineering,  licensing  and legal
studies for the  preparation of a license  application  submitted to the Nuclear
Regulatory Commission in 1997.

      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>


                                    - 12 -

REGULATION AND RATES


      GENERAL.  CEI is a "public  utility  holding  company"  under  the  Public
Utility  Holding  Company  Act of  1935  (the  "1935  Act").  The  staff  of the
Securities and Exchange Commission ("SEC"),  which administers the 1935 Act, has
recommended,  and several  bills have been  introduced  in  Congress  that would
accomplish, the repeal of 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. 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 - Competition and Industry  Restructuring and PSC Settlement Agreement
" in Item 7 and "Challenges to Settlement Agreement" in Item 3.

      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 CEI's  relationships
with Con Edison or Con Edison's relationships with CEI's 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 and "Challenges to Settlement Agreement" in
Item 3.


      STATE ENERGY PLAN.  In October  1994,  the New York State Energy  Planning
Board,  released  its most recent  State  Energy  Plan.  The plan is designed to
provide "an  intelligent  framework for  evaluating the proper course for energy
policy,  environmental  protection and economic development . . . to assure that
New Yorkers will have a safe, affordable and reliable supply of energy that will
promote  future  economic  growth and protect our  environment."  Under New York
State law, any  energy-related  decisions of State  agencies  must be reasonably
consistent with the plan.  Although the Energy Planning Board had announced that
a new plan would be issued during 1997, the new plan has not yet been issued.



<PAGE>


                                    - 13 -

ENVIRONMENTAL MATTERS AND RELATED LEGAL PROCEEDINGS

      GENERAL.   During  1997,   Con   Edison's's   capital   expenditures   for
environmental  protection  facilities and related studies were approximately $43
million.   The  Company   estimates  that  such   expenditures  will  amount  to
approximately $49 million in 1998 and $35 million in 1999. These amounts include
capital  expenditures in 1998 and 1999 required to comply with the Federal Clean
Air Act  amendments  of 1990 and a 1994  consent  decree with the New York State
Department of Environmental Conservation. See "Liquidity and Capital Resources -
Air Quality" in Item 7 and "Environmental Matters - DEC Settlement" in Note F to
the financial statements in Item 8.

      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 which Con Edison and its predecessor  companies used to operate.  For
additional   information  about  Superfund,   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 "Gramercy  Park" 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.

      AIR QUALITY. For information about the Federal Clean Air Act amendments of
1990 and ambient air quality  standards for ozone and  particulate  matter,  see
"Liquidity and Capital Resources - Air Quality" in Item 7. For information about
divestiture  of Con Edison's  in-City  generating  capacity,  see "Liquidity and
Capital Resources - PSC Settlement Agreement" in Item 7 and "Electric Facilities
- Generating Facilities" in Item 2.

      The New York City air pollution  control code contains  limitations on the
allowable   sulfur  content  of  fuels  and  on  emissions  of  sulfur  dioxide,
particulate  matter,  oxides of nitrogen  and various  trace  elements.  Certain
provisions of the code, specifically those pertaining to standards for emissions
of  nitrogen  oxides,  may be  impracticable  to meet  at  some of Con  Edison's
generating  stations  located in New York City unless  variances or other relief
from such  provisions are granted.  Revision of the code is not expected.  These
code  provisions,  which have existed since the early 1970's,  have not had, and
are not expected to have, a material adverse effect on Con Edison's operations.



<PAGE>



                                       - 14 -

      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.  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.

      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 have been 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]." For additional  information about EMF, 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

      The Company  had 15,029  employees  on December  31,  1997.  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>


<TABLE>
 
                                       - 15 -

OPERATING STATISTICS
=======================================================================================================
<S>                                  <C>          <C>          <C>          <C>          <C>          
Year Ended December 31                   1997       1996         1995          1994         1993
-------------------------------------------------------------------------------------------------------
ELECTRIC Energy (MWhrs)

Generated (a)                        15,877,467   17,823,778   18,436,798   20,419,828   20,079,995
Purchased from Others (a)            27,105,143   26,178,042   26,700,594   21,036,437   19,813,654
Total Generated and Purchased        42,982,610   44,001,820   45,137,392   41,456,265   39,893,649
Less: Supplied without direct charge         71           71           71           73           74
      Used by Company (b)               155,934      164,206      165,934      134,940      183,903
      Distribution losses and
            other variances           2,799,039    2,716,235    2,977,547    2,762,315    2,863,828
Net Generated and Purchased          40,027,566   41,121,308   41,993,840   38,558,937   36,845,844

Electric Energy Sold:
      Residential                    11,002,745   10,867,085   10,848,648   10,660,148   10,512,496
      Commercial and Industrial      25,911,199   25,725,502   25,492,489   25,511,974   25,118,125
      Railroads and Railways             75,392       47,004       47,482       47,289       49,542
      Public Authorities                538,643      564,363      569,749      554,753      560,836
Total Sales to Con Edison Customers  37,527,979   37,203,954   36,958,368   36,774,164   36,240,999
Off-System Sales (a) (c)              2,499,587    3,917,354    5,035,472    1,784,773      604,845
Total Electric Energy Sold           40,027,566   41,121,308   41,993,840   38,558,937   36,845,844

Total Sales to Con Edison Customers  37,527,979   37,203,954   36,958,368   36,774,164   36,240,999
Delivery Service to NYPA
      Customers and Others            8,793,378    8,816,873    8,855,790    8,773,155    8,441,624
Service for Municipal Agencies          845,895      617,293      456,728      413,893      361,854
Total Sales in Franchise Area        47,167,252   46,638,120   46,270,886   45,961,212   45,044,477


Average Annual kWhr Use Per
      Residential Customer (d)            4,225        4,184        4,188        4,136        4,104

Average Revenue Per kWhr Sold (cents):
      Residential (d)                      16.6         16.5         16.1         15.8         16.0
      Commercial and Industrial (d)        13.0         12.9         12.5         12.2         12.6



(a)  For 1997, 1996 and 1995,  amounts generated include 973,483,  1,672,603 and
     3,159,047 MWhrs, respectively, generated for others, which is 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.  See  "Electric
     Operations - Gas Conversions," above.

(b)  For 1995 and 1993,  electric  energy  used by Con Edison  includes  436 and
     29,233  MWhrs,  respectively,  supplied to NYPA.  For 1997,  1996 and 1994,
     electric energy used by Con Edison  includes  4,805,  544 and 21,275 MWhrs,
     respectively, received from NYPA.

(c)  For 1997, 1995, 1994 and 1993, off-system sales include 54, 2,825, 350, and
     2,142 MWhrs, respectively, which were sold to NYPA and are also included in
     the Delivery Service to NYPA. There were no such sales to NYPA in 1996.

(d)  Includes Municipal Agency sales.


<PAGE>


                                        - 16 -

OPERATING STATISTICS
=======================================================================================================
<S>                                  <C>          <C>          <C>          <C>          <C>  
Year Ended December 31                   1997       1996         1995          1994         1993
-------------------------------------------------------------------------------------------------------
GAS (Dth) (a)

Purchased (b)                        242,296,610  219,439,813  217,268,986  208,328,267  214,719,241
Storage - net change                  (1,630,463)  (4,032,224)   9,469,767   (4,410,363)     222,559
    Used as boiler fuel  at Electric
      and Steam Stations (b)        (109,508,555) (84,849,049)(110,761,124) (92,680,221)(108,153,436)
Gas Purchased for Resale             131,157,592  130,558,540  115,977,629  111,237,683  106,788,364

Less: Gas used by Company                239,359      272,040      237,688      221,715      203,793
      Off-System Sales & NYPA (c)     14,216,403   11,023,023    4,887,971         --           --
      Distribution losses
           and other variances           104,5        176,930    4,654,832    2,443,486    3,998,234
Total Sales to Con Edison Customers  116,597,299  119,086,547  106,197,138  108,572,482  102,586,337

Gas Sold (a)
Firm Sales:
      Residential                     53,217,428   56,590,018   51,702,329   53,981,416   52,624,331
      General                         39,468,337   42,190,091   39,021,997   39,365,003   37,214,994
      Total Firm Sales                92,685,765   98,780,109   90,724,326   93,346,419   89,839,325
Interruptible Sales                   23,911,534   20,306,438   15,472,812   15,226,063   12,747,012
Total Sales to Con Edison Customers  116,597,299  119,086,547  106,197,138  108,572,482  102,586,337
Transportation of Customer-Owned Gas:
      NYPA                            17,041,695    4,966,983   24,972,796   14,546,325   15,965,084
      Other                            8,464,900    5,011,124    5,388,393    3,823,176    4,926,565
Off-System Sales                      13,958,984   11,293,425    3,376,375        --            --                       
Total Sales and Transportation       156,062,878  140,358,079  139,934,702  126,941,983  123,477,986


Average Revenue Per Dth Sold (a):
      Residential                         $11.22       $10.00       $ 9.43       $ 9.85        $9.27
      General                            $  8.14      $  7.15       $ 6.38       $ 7.05        $6.71



STEAM Sold (Mlbs):                    27,422,561   29,995,762   29,425,780   30,685,155   29,394,335

Average Revenue per Mlbs Sold             $14.23       $13.34       $11.35       $11.10       $11.06


CUSTOMERS - Average for Year
Electric                               3,010,139    3,001,870    2,994,447    2,980,026    2,964,716
Gas                                    1,036,098    1,035,528    1,034,784    1,031,675    1,028,048
Steam                                      1,920        1,932        1,945        1,964        1,973

(a)  Does  not  include  amounts  for Con  Edison  Solutions.  See  "Competitive
     Businesses and Competition," above.

(b)  For  1997,  1996 and  1995,  gas used as boiler  fuel  includes  9,636,239,
     16,739,188  and  31,706,551  Dth,  respectively,  provided  by others.  See
     "Electric Operations - Gas Conversions," above.

(c)  For 1997,  1996 and 1995,  includes  259,220,  173,388 and  1,305,730  Dth,
     respectively, for balancing transactions with NYPA.

</TABLE>


<PAGE>



                                        - 17 -


ITEM 2.   PROPERTIES

      At December 31, 1997, the capitalized  cost of Con Edison's utility plant,
net of accumulated  depreciation,  (and excluding $102.3 million of nuclear fuel
assemblies) was as follows:

                        Net Capitalized Cost                Percentage of
Classification         (millions of dollars)                Net Utility Plant

In Service:
      Electric:
           Generation           $  1,624.7                      14%
           Transmission            1,127.6                      10%
           Distribution            5,445.7                      49%
      Gas                          1,348.7                      12%
      Steam                          477.4                       4%
      Common                         843.6                       8%
Held For Future Use                    4.9                      --
Construction Work in Progress        292.2                       3%
Net Utility Plant                $11,164.8                     100%


ELECTRIC FACILITIES

      GENERATING  FACILITIES.  As shown in the following  table, at December 31,
1997,  Con Edison's net maximum  generating  capacity (on a summer rating basis)
was 8,291 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, 1997        Energy Generated  and
                       (Megawatts-Summer Rating)       Purchased in 1997*
Fossil-Fueled:
   Ravenswood (3 Units)             1,742                         9.9%
   Astoria (3 Units)                1,075                         8.4%
   Arthur Kill (2 Units)              826                         2.7%
   East River (2 Units)               300                         1.1%
   Bowline Point (2 Units)
        - two-thirds interest         808                         2.4%
   Roseton (2 Units)
        - 40% interest                482                         2.9%
   Other (4 Units)                    187                         1.3%
      Subtotal                      5,420                        28.7%
Nuclear - Indian Point                931                         7.3%
Gas Turbines (39 Units)             1,940                         0.9%
      Total                         8,291                        36.9%
----------------
* 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.

      Con Edison's  fossil-fueled  plants burn natural gas or residual oil. Most
of the gas turbines burn  distillate  oil.  Certain units have the capability to
burn either natural gas or oil. See "Fuel Supply" in Item 1.



<PAGE>


                                    - 18 -

      In March 1998, pursuant to the Settlement Agreement,  Con Edison submitted
a detailed plan to the PSC for the divestiture to unaffiliated  third parties or
transfer to an  unregulated  affiliate  of Con Edison of all of Con Edison's New
York City  fossil-fueled  electric  generating  capacity.  Under  the plan,  Con
Edison's  approximately  5,500 MW of  in-City  capacity  is  divided  into three
separate  groups,  or  "asset  bundles."  Each  asset  bundle  includes  a major
generating  station  -  Ravenswood,  Astoria  or Arthur  Kill - and gas  turbine
generating  facilities.  Pursuant to the plan, Con Edison will offer for sale by
auction two of the asset  bundles  and  transfer  the third asset  bundle to its
unregulated  affiliate.  Con  Edison has not yet  identified  which of the asset
bundles will be offered for sale and which will be  transferred.  Con Edison has
requested the PSC to rule  expeditiously on the plan so that it may commence the
auctioning of the generating  assets to be divested as rapidly as possible.  For
additional  information,  see "Liquidity and Capital  Resources - PSC Settlement
Agreement-  Divestiture  Commitment and Recovery of Prior Costs and Commitments"
in Item 7 and "Challenges to Settlement Agreement" in Item 3.

      Con Edison is currently exploring with Orange and Rockland Utilities, Inc.
("O&R") alternatives with respect to the future disposition of the Bowline Point
station.  O&R has a one-third interest and Con Edison has a two-thirds  interest
as tenants in common in the Bowline Point station, which is operated by O&R. Con
Edison  and O&R  have  reciprocal  rights  of first  refusal  on any sale of the
other's  interest in Bowline point.  Under a settlement  agreement with the PSC,
O&R has agreed to divest all of its  generating  assets,  including its share of
Bowline Point.

      Con Edison is  currently  evaluating  with  Central  Hudson Gas & Electric
Corporation  ("Central  Hudson") and Niagara Mohawk Power Corporation  ("Niagara
Mohawk")  several  options  regarding  the  future  disposition  of the  Roseton
station.  Central Hudson has a 35 percent interest,  Niagara Mohawk a 25 percent
interest  and Con  Edison a 40  percent  interest  as  tenants  in common in the
Roseton  station  (which is operated  by Central  Hudson).  Con Edison,  Central
Hudson and Niagra Mohawk have reciprocal  rights of first refusal on any sale of
the others'  interest in Roseton.  In addition,  Central  Hudson has the option,
exercisable in 1999, to acquire Con Edison's interest in 2004.

     For  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.

     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']."

     In March 1998, Con Edison  received a  Confirmatory  Action Letter in which
the NRC concurred  with Con Edison's  restart plan to resume power  operation of
Indian Point 2 following  completion  of certain  plant  improvement  activities
currently in progress.  The unit has been out of service since mid-October 1997.
Con Edison has informed the NRC of its intent to conduct an  independent  safety
assessment and meet with the NRC to discuss the findings of the assessment.  

      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, 1997, Con Edison's  transmission  system had approximately
432 miles of overhead circuits  operating at 138, 230, 345 and 500 kilovolts and
approximately  378  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, 1997,  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 1997  one-hour  peak load in Con Edison's  service area was 11,013
MW, of which 9,643 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.


<PAGE>


                                    - 19 -

      DISTRIBUTION FACILITIES.  Con Edison owns various distribution substations
and facilities  located  throughout  New York City and  Westchester  County.  At
December  31,  1997,  Con  Edison's  distribution  system  had 293  distribution
substations,  with a transformer  capacity of 20,168  megavolt  amperes,  32,368
miles  of  overhead   distribution   lines  and  87,455  miles  of   underground
distribution lines.


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 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 April 1998, Con Edison expects to submit to the PSC a long-range plan for the
steam system. See "Electric Facilities- Generating Facilities," above.


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. The EPA advised Con Edison by letter,
dated November 26, 1986, that it was 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).  The EPA's letter alleges that various  radionuclides  and organic
chemicals  have been released from the site into the  environment.  In September
1991, the EPA issued its Record of Decision for the site cleanup program.  Phase
one of the program  requires,  among other  things,  the removal,  treatment and
on-site disposal of the contaminated leachate that has accumulated in the site's
waste burial  trenches,  the  installation of an impervious cover over the waste
burial  trench  area of the  site,  and the  construction  of a  trench/leachate
groundwater monitoring system, erosion controls and storm water drainage systems
in that area. Phase two requires a 100-year  stabilization period, with periodic
monitoring and maintenance of the cover, followed by installation of a permanent
cap.





<PAGE>


                                    - 20 -

      In March  1995,  the EPA,  de  minimis  PRPs,  large  private  party  PRPs
(including  Con Edison),  large  federal  agency PRPs and Kentucky  entered into
consent  decrees with respect to the funding and  implementation  of the cleanup
program.  Under the consent  decrees,  which in April 1996 were  approved by the
United States  District  Court for the Eastern  District of Kentucky,  the large
private party PRPs will  implement  phase one of the program and any  corrective
actions required during the first 10 years following  completion of phase one to
meet the performance standards established in the Record of Decision,  and share
the costs of those  activities  with the large  federal  agency PRPs.  Also,  if
during this ten-year period the EPA determines that horizontal flow barriers are
required, the large private party PRPs will construct the barriers and share the
cost of that work with the large  federal  agency PRPs and  Kentucky.  The large
private party PRPs are not  responsible  for any costs after the ten-year period
expires.  Kentucky will  implement and fund the phase two program.  Con Edison's
share of the cleanup costs is estimated to be about  $500,000.  In addition,  if
horizontal  flow  barriers are required  during the  ten-year  period  following
completion  of the phase one  program,  Con Edison  would be obligated to pay an
estimated  $10,000  to  $100,000  depending  on the size and the  number  of the
barriers required by the EPA.


      CURCIO SCRAP METAL SITE. The EPA advised Con Edison,  in a letter received
on August 11, 1987,  that it had documented the release of hazardous  substances
into the  environment  at the site of Curcio Scrap Metal,  Inc. in Saddle Brook,
New Jersey,  and that the EPA had  information  indicating  that Con Edison sent
hazardous  substances  (PCBs)  to the site.  Con  Edison  provided  the EPA with
records that  indicated that Con Edison sold scrap  electric  transformers  to a
metal broker who in turn sold them to the owner of the site.  On  September  30,
1991, the EPA issued a Unilateral Administrative Order which required Con Edison
and three other PRPs to commence a soil and  sediment  cleanup at and around the
site pursuant to the EPA's Record of Decision, dated June 28, 1991. This cleanup
work has been  completed.  On  September  30,  1997,  the EPA issued a Record of
Decision  which  concludes that the soil and sediment  cleanup had  successfully
remediated the principal threats  associated with the site and requires periodic
groundwater  monitoring  for five years.  The EPA  estimates  that the  required
groundwater  monitoring  will  cost  approximately  $200,000.  Depending  on the
results of the  monitoring,  the EPA could extend the monitoring  program for an
additional five years or require remedial measures such as groundwater treatment
or cleanup work.

      METAL BANK OF AMERICA  SITES.  The EPA advised Con Edison by letter  dated
October 26, 1987 that it had reason to believe that Con Edison was a supplier of
scrap   transformers  to  Metal  Bank  of  America  Inc.'s  recycling  sites  in
Philadelphia  during the late 1960s and thereafter.  One of the sites was placed
on the EPA's  national  priority  list under  Superfund in 1983 as a result of a
suspected leak in a storage tank containing  PCBs. The EPA alleged that PCBs had
been  found in the soil and  groundwater  at the site and in the  sediment  from
areas of a tidal mudflat and the Delaware River along the site's shoreline.  Con
Edison  provided  the EPA with  documents  which  indicate  that Con Edison sold
approximately 80 scrap transformers to a broker who, in turn,  delivered them to
the site and that Con Edison sold an additional 46 scrap  transformers  to Metal
Bank (which may have salvaged them at the site).  In December 1997, EPA issued a
Record of Decision which calls for, among other things, the removal and disposal
of PCBs and polynuclear aromatic hydrocarbon-contaminated sediments in the areas
of the tidal  mudflat and the  Delaware  River along the site's  shoreline,  the
construction  of a sheet pile wall along the site's  shoreline,  the removal and
off-site  disposal of soil in the southern  portion of the site that contains 25
parts per million (ppm) or more of PCBs,  and the removal and off-site  disposal
of soil that  contains  more than 10 ppm of PCBs in the northern  portion of the
site.  Although EPA estimated the cost of these measures at about $17.2 million,
the PRP steering committee for the site believes that they could cost as much as
$31.7  million to  implement.  Con Edison  does not expect that its share of the
cost of the site cleanup program selected by the EPA will exceed 1.48 percent.



<PAGE>


                                    - 21 -


      NARROWSBURG  SITE. In 1987, the New York State Attorney  General  notified
Con Edison that he had  evidence  that Con Edison is a PRP under  Superfund  for
hazardous  substances  that  have  been  released  at the  Cortese  landfill  in
Narrowsburg,  Sullivan  County,  New York. The Cortese landfill is listed on the
EPA's Superfund National Priorities List. Con Edison records indicate that drums
containing  waste oil were shipped from its Indian Point nuclear  station to the
Cortese landfill for disposal. Before notifying Con Edison, the Attorney General
commenced an action under  Superfund in the United States District Court for the
Southern  District of New York  against the Cortese  site owner and operator and
SCA Services  ("SCA"),  an alleged  transporter  of hazardous  substances to the
site. On January 17, 1989, SCA commenced a third-party  action for  contribution
against Con Edison and five other  parties  whose  chemical  waste was allegedly
disposed  of at the  site.  In 1990,  SCA  served a second  amended  third-party
complaint  in which it sued the Con Edison and 27 other  third-party  defendants
for  contribution.  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 conducted by SCA and agreed to pay 6 percent of the
first $25 million of remedial costs at 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. SCA, Con Edison and various other third-party  defendants with
which SCA  settled  entered  into a consent  decree  under  which  they agree to
implement the cleanup program, to pay the EPA's oversight costs for the site and
to pay approximately  $220,000 for natural resource damages.  The consent decree
has been approved by the United States District Court for the Southern  District
of New York. Cleanup work at the site is now in progress.

      CARLSTADT  SITE.  On  August  20,  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 shipped 120,000 gallons of waste
oil to this site and 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 would be 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.  In 1990, the EPA
selected  an  interim  remedy to  control  releases  from the site while the EPA
evaluates and develops a final cleanup  remedy.  The interim  remedy called for,
among other  things,  the  construction  of a slurry wall around the site and an
infiltration  barrier over the site. EPA estimated that the interim remedy would
cost about $3 million to implement.  Plaintiffs  claim that the interim  remedy,
which has been completed, cost $10 million.



      HELEN  KRAMER  LANDFILL  SITE.  In  September  1991,  Orange and  Rockland
Utilities,  Inc.  (O&R) was served with a  third-party  complaint in a Superfund
cost recovery  contribution action for the Helen Kramer Landfill Site in Mantau,
New Jersey.  The  third-party  plaintiffs  are site PRPs that were sued for site
cleanup costs by the State of New Jersey. The complaint, which is pending before
the United States  District Court for the District of New Jersey,  alleges that,
in  1974,  Marvin  Jonas,  Inc.  transported  hazardous  substances  for O&R and
disposed  of  those  substances  in  the  Helen  Kramer  Landfill.   Preliminary
investigation  by O&R  indicates  that  waste  materials  generated  during  the
construction of the Bowline Point generating station were hauled and disposed of
by Marvin Jonas, Inc. in 1974. Con Edison owns a two-thirds  interest in Bowline
Point. O&R, which operates Bowline Point, owns the remaining one-third interest.
Bowline Point  liabilities  are shared by Con Edison and O&R in accordance  with
their respective ownership interests. The EPA has commenced cleanup of this site
and the total site cleanup cost is estimated at $150  million.  The  third-party
plaintiffs have offered to settle with O&R and other third-party defendants.  If
the  settlement  is approved by the district  court,  O&R would pay $15,000 to a
site  trust fund and the  third-party  plaintiffs  would  dismiss  their  action
against  O&R and  indemnify  O&R from  claims  for site  cleanup  costs by other
parties.




<PAGE>


                                    - 22 -

      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 study
and cleanup of the Global  Landfill  Site in Old Bridge,  New Jersey.  This 57.5
acre  municipal  and  industrial  waste  landfill 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.

      Con Edison  provided EPA with records  indicating  that it had disposed of
approximately ten cubic yards of waste asbestos at the site in February 1984. In
August  1989,  the  NJDEPE  served Con Edison  with a Spill Act  directive  that
required  Con Edison and 40 other  designated  site PRPs to fund a $1.5  million
remedial investigation and feasibility study for the site. Con Edison joined the
PRP Group formed for the site and the Group entered into a settlement  agreement
and an  administrative  consent  order with NJDEPE  that,  among  other  things,
required the PRP Group's members to contribute  $500,000 towards the cost of the
study. Con Edison's share of the PRP Group's payment to the NJDEPE was $5,000.

      In February  1991, the EPA and the NJDEPE  proposed a $30 million  interim
remedy for the site. This remedy calls for the  installation of gas and leachate
collection  and  treatment  systems at the landfill and the  construction  of an
impervious  cover over the landfill (Phase I). It also calls for further studies
to  determine  the   alternatives   for  addressing   groundwater  and  wetlands
contamination  in the  vicinity of the landfill  (Phase II). In March 1991,  the
NJDEPE  served Con Edison with a second Spill Act  Directive  that  required Con
Edison  and the  other  site PRPs to pay for the  implementation  of the Phase I
remedy for the site. The PRP Group entered into a consent decree with the NJDEPE
under which they agreed to implement the Phase I remedy with partial  funding to
be provided by the NJDEPE.  Con Edison's share of the cost of the Phase I remedy
is estimated at $150,000.

      CHEMSOL  SITE.  By letter dated  December  20,  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 during the 1960 to 1965 period.  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. during the 1960-1965 period. 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 December 1987, the DEC classified Con Edison's former
Echo Avenue substation site in New Rochelle,  New York as an "Inactive Hazardous
Waste Disposal Site." The basis for this classification was the presence of PCBs
in the soil and in the buildings on the site. Although Con Edison has cleaned up
the PCBs on the site,  the DEC  requires a thorough  site survey  before it will
remove the site from the Inactive  Hazardous  Waste Disposal Site list.  Under a
consent  order with the DEC,  a new site  survey  was done and  remedial  action
taken.  The cost to Con Edison of this additional work was $213,000.  Con Edison
demolished  its  building on this site,  and expects to incur  approximately  $1
million in additional cleanup expenses

      In January 1992, the owners of Echo Bay Marina filed suit in Federal court
alleging that PCBs were being  discharged  from Con Edison's  former Echo Avenue
Substation Site in New Rochelle, New York into the Long Island Sound. 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  December  1994,  the court  dismissed
plaintiffs  claims for property  damage,  including  loss of business.  Pretrial
discovery  on the  remaining  claims is  continuing.  Con  Edison  expects at an
appropriate  time to file a motion for summary  judgment on the personal  injury
claims. Trial on the remaining claims is set for November 1998.




<PAGE>


                                    - 23 -

      PCB TREATMENT,  INC.  SITES.  On September 30, 1994, Con Edison received a
letter from the EPA indicating  that it had been identified as a PRP for the PCB
Treatment,  Inc. (PTI) Sites in Kansas City,  Kansas and Kansas City,  Missouri.
The sites -- a vacant, five-story building and a partially-occupied, seven-story
building -- were used by PTI from 1982 until 1987 for the  storage,  processing,
and  treatment  of  PCB-containing  electric  equipment,  dielectric  oils,  and
materials. According to the EPA, the buildings' floor slabs and ceilings and the
soil areas outside the buildings'  loading docks are contaminated with PCBs. The
EPA has  indicated  that more than 25 million  pounds of  PCB-contaminated  oil,
equipment and  materials  were shipped to the sites by over 1,500  parties.  Con
Edison has informed the EPA that it shipped  approximately 2.9 million pounds of
PCB-contaminated oil and equipment to the sites.

      In September  1996,  Con Edison joined a PRP steering  committee  that has
agreed  to  conduct  studies  at the  sites  under an EPA  consent  order and is
negotiating  a cost  sharing  agreement  with  federal  agency  PRPs.  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  owners and lessees  indicate the  presence of hazardous  substances
which are associated with the manufactured gas process. Con Edison has agreed to
participate  with the site owners and lessees in further site studies to develop
and  implement  a  cleanup  plan that will be  acceptable  to the DEC.  The site
studies are now being conducted under a stipulation agreement with the DEC, with
funding by Con Edison.

      ASTORIA SITE. The Federal Resource Conservation and Recovery Act delegates
to the states licensing  authority for PCB storage. As a condition to renewal by
the DEC of Con Edison's permit to store PCBs at Con Edison's Astoria  generating
station  in  Queens,  New  York,  Con  Edison  is  required  to  conduct  a site
investigation   and,  where   necessary,   a  remediation   program.   The  site
investigation  commenced in April 1994 and is scheduled to be completed in 1998.
The cost of the  investigation  is  estimated  at  approximately  $5 million.  A
portion of the investigation has been completed and reports thereon,  indicating
PCB-contamination  of portions of the site,  have been  submitted to the DEC and
the New York State Department of Health for the determination of the remediation
action that may be required. Depending on the remediation required, the costs of
remediation could be material.

      HUNTS POINT SITE.  In September  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 November 1995,  Anchor Motor Freight,  Inc. notified
Con Edison that it had discovered  coal tar on its site in  Westchester  County.
Anchor requested that Con Edison remediate the site. A predecessor of Con Edison
had operated a manufactured gas plant at that location prior to the 1940's.  Con
Edison has conducted preliminary sampling at the site and found coal tar beneath
the areas formerly  occupied by the manufactured gas plant. Coal tar at the site
has also been found 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 has assumed  responsibility  for maintaining a boom in the
river  around the area of bulkhead  and will  develop a cleanup  program for the
coal tar contamination  under an agreement with the DEC. The cost of the cleanup
program  could  exceed $8 million if the DEC requires Con Edison to excavate all
of the coal tar.




<PAGE>


                                    - 24 -

      BORNE  CHEMICAL  SITE. In May 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 New Jersey Spill  Compensation and 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 (the "Contractor").

      The  third-party  plaintiffs  in the lawsuit were ordered by the NJDEPE to
conduct  emergency  removal  actions for the oil and chemical  drums,  tanks and
underground  piping systems at the site and to complete studies to determine the
extent to which the site's soil and groundwater is contaminated. The third-party
plaintiffs  are seeking  contribution  for the more than $10  million  that they
expect to incur to comply with the NJDEPE  order and for the cost of any cleanup
program  that the  NJDEPE may  require  in the  future  for the site's  soil and
groundwater.

      Con Edison  shipped  between 12,000 and 13,000 gallons of used turbine oil
to the site for treatment in 1976. It also shipped almost 1,200 empty drums that
may  have  contained  oil and  chemical  residue  to the  site.  The  Contractor
conducted  numerous oil spill cleanups for Con Edison during the late 1970's and
early 1980's.  It is not known whether the Contractor  used the site for storage
or handling of any  contaminated  materials from work the Contractor did for Con
Edison.

      CAPASSO SITE. In December  1997, Con Edison was served with a complaint by
DMJ Associates  ("DMJ") seeking to compel Con Edison and 16 other  defendants to
clean up  contamination at the Capasso property located in Long Island City, New
York. DMJ holds a note to which the Capasso property is security. The complaint,
which is  pending  before  the  United  States  District  Court for the  Eastern
District of New York, alleges that Con Edison sent waste to the Quanta Resources
facility  (Quanta) and that  contamination,  including  PCB  contamination,  has
migrated  from  Quanta  to  the  Capasso  property  and is  contributing  to the
contamination  on or about the  Capasso  property.  Con Edison 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.

TOXIC SUBSTANCES CONTROL ACT

      In November 1994, BCF Oil Refining,  Inc., a processor and refiner of used
oil  products  and waste  containing  oil,  brought  suit in the  United  States
District Court for the Southern District of New York against Con Edison and four
transporters of waste oil products  alleging that the defendants  (primarily Con
Edison) caused PCB contaminated waste to be shipped to BCF thereby contaminating
its  facilities.  In addition to the remediation of BCF's  facilities  under the
Federal Toxic Substances  Control Act, the suit sought  compensatory  damages of
not less than $12.5  million from all the  defendants  and  additional  punitive
damages of not less than $12.5 million from Con Edison.  In February  1997,  the
court  dismissed 24 of BCF's 25 claims and Con Edison filed a motion  asking the
court to dismiss the  remaining  claim.  In  December  1997,  a jury  returned a
verdict in favor of Con  Edison on the  remaining  claim.  This  proceeding  was
entitled BCF Oil  Refining,  Inc. v.  Consolidated  Edison  Company of New York,
Inc., et. al.

GRAMERCY PARK

      On August 19, 1989,  a Company  steam main  exploded in the Gramercy  Park
area of Manhattan,  releasing  debris  containing  asbestos into that area.  Con
Edison took responsibility for the asbestos cleanup and most of the cost of that
cleanup was covered by Con  Edison's  insurance.  In April 1995,  Con Edison was
sentenced  to a fine of  $500,000  on each of four  counts  and to  three  years
probation for criminal acts relating to the reporting of the release of asbestos
from the steam  main  explosion.  During  the  probation  period,  Con  Edison's
compliance  with  environmental  laws is being  monitored  by a  court-appointed
monitor.

DEC PROCEEDINGS

      Reference is made to "Environmental Matters - DEC Settlement" in Note F to
the financial statements in Item 8 and "Results of Operations - Other Operations
and Maintenance Expenses" in Item 7.



<PAGE>


                                    - 25 -

      In September  1997,  Con Edison agreed to a consent order settling a civil
administrative  proceeding  instituted by the DEC alleging opacity violations by
Con Edison.  Pursuant  to this  consent  order,  the  essential  elements of Con
Edison's  existing  Opacity  Reduction  Program were  established as enforceable
conditions  of the  operating  permits  that  the DEC  issues  for Con  Edison's
facilities.  The  September  1997 consent order also assessed a civil penalty of
$25,000,  which was suspended  provided that Con Edison complies with the order.
In October  1997,  Con Edison  agreed to a DEC consent order with respect to oil
and hazardous waste incidents  occurring since November 1994. Under this consent
order,  Con Edison will survey a number of its facilities and test the integrity
of underground fuel oil pipelines at Con Edison's major oil storage  facilities.
Con Edison also will retire several of its  underground  fuel oil pipelines that
had been operated within New York City. In addition,  Con Edison paid a $385,000
penalty,  $58,000 for damages and  $345,000 to programs  designed to benefit the
environment.  Con Edison does not expect the  September and October 1997 consent
orders to have a material adverse effect on Con Edison's  financial  position or
results of operations.

ASBESTOS LITIGATION

      For a  discussion  of  asbestos  and suits  against  Con Edison  involving
asbestos,  see "Environmental  Matters and Related Legal Proceedings - Asbestos"
in Item 1,  and  "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. On May 9, 1988,  Con Edison was served
with a  complaint  in an action in the New York State  Supreme  Court,  New York
County, in which  approximately 184 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  seeks  $1  million  in  punitive  damages,   unspecified  additional
compensatory  damages,  and to enjoin Con Edison from violating EPA  regulations
and exposing employees to asbestos without first taking certain safety measures.
On May 16,  1988,  the  complaint  was  amended to add a claim by each  employee
plaintiff for $1 million in damages for mental  distress.  In November 1988, the
complaint was amended to add four  additional  employee  plaintiffs.  On July 9,
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.  On January 19, 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  December  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. Plaintiffs have appealed the dismissal. In January 1998, these
plaintiffs  sued Con Edison in New York  State  Supreme  Court,  County of Kings
claiming  violations of the New York Public Service Law and the New York General
Business Law,  fraud,  unjust  enrichment and negligent  misrepresentation.  Con
Edison's motion to dismiss the January 1998 lawsuit is pending.



<PAGE>


                                    -26 -


CHALLENGES TO SETTLEMENT AGREEMENT

      In  February  1998,  the Public  Utility  Law  Project  of New York,  Inc.
("PULP") commenced a lawsuit 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.  Also, in March 1998  Travelers
Group  Inc.  and  Smith  Barney  Inc.  instituted  a  lawsuit  against  the  PSC
challenging a provision of the Settlement  Agreement  that exempts  certain NYPA
governmental   customers,   but  not  NYPA's  economic   development   customers
("EDDS"),from the stranded cost recovery provisions of the Settlement  Agreement
and the  unavailability  of Industrial  Employment  Growth  Credits to NYPA EDDS
customers.  The  lawsuits  are pending in the Supreme  Court of the State of New
York,  County of Albany.  Con Edison does not expect the lawsuits to result in a
material  adverse  effect on its  financial  condition,  results of operation 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.

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. See
also, "Fuel Supply - Nuclear Fuel" in Item 1.


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

      (a) At a Special  Meeting of  Stockholders  of Con Edison held on December
12, 1997, the  stockholders of Con Edison approved the Holding Company  Proposal
and the Con Edison Board Proposal. The "Holding Company Proposal" was to adopt a
holding company structure for Con Edison in which,  pursuant to an Agreement and
Plan  of  Exchange,  Con  Edison  would  become  a  subsidiary  of CEI  and  the
outstanding  shares of Con  Edison's  Common  Stock  ($2.50 par value)  would be
exchanged  automatically on a share-for-share  basis for CEI Common Shares ($.10
par value). The "Con Edison Board Proposal" was to authorize an amendment to Con
Edison's  Certificate  of  Incorporation  to  change  the  authorized  number of
Trustees  to "not  more  than 16" from  "not  less  than 13 nor more  than  20."
Additional  information  about the Holding  Company  Proposal and the Con Edison
Board Proposal is contained in the Proxy Statement and Prospectus of CEI and Con
Edison included in CEI's Registration Statement on Form S-4 (No. 333-39164).

      (b) The  results  of the  vote on the  Holding  Company  Proposal  were as
follows:  169,727,448 shares were voted for this proposal; 2,494,146 shares were
voted against the proposal;  2,286,314 shares were  abstentions;  and 23,983,761
shares were broker nonvotes.

      (c) The  results  of the vote on the Con  Edison  Board  Proposal  were as
follows:  193,108,137 shares were voted for this proposal; 2,931,776 shares were
voted against the proposal; and 2,451,756 shares were abstentions.




<PAGE>



                                    - 27 -

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, 1998.  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.

Name                       Age     Offices and Positions During Past Five
                                   Years
-----------------------------------------------------------------------------

Eugene R. McGrath          56      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           52      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           56      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
                                   7/96 to 2/98 - 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          61      7/95 to present - Executive Vice
                                   President - Central Services
                                   2/89 to 6/95 - Executive Vice President
                                   - Customer Service

Stephen B. Bram            55      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                47      3/98 to present - Senior Vice President
                                   - Corporate Planning
                                   3/93 to 2/98 - Vice President -
                                   Corporate Planning

Mary Jane McCartney        49      10/93 to present - Senior Vice President
                                   - Gas
                                   2/93 - 10/93 - Vice President - Gas
                                   Operations

Peter J. O'Shea, Jr.       60      10/97 to present - Senior Vice President
                                   and General Counsel of CEI
                                   1/96 to present - Senior Vice President
                                   and General Counsel
                                   4/87 to 12/95 - Vice President and
                                   Associate General Counsel, ITT
                                   Corporation



<PAGE>


                                    - 28 -


Name                       Age     Offices and Positions During Past Five
                                   Years
-----------------------------------------------------------------------------

Horace S. Webb             57      9/92 to present - Senior Vice President
                                   - Public Affairs

Archie M. Bankston         60      12/97 to present - Secretary of CEI
                                    6/89 to present - Secretary and
                                   Associate General Counsel



James P. O'Brien           50      1/98 to present - General Auditor
                                   3/94 to 12/97 - Vice President -
                                   Information Resources
                                   6/89 to 3/94 - Assistant Vice President
                                   - Employee Relations

Robert A. Bell             64      6/81 to present - Vice President - Research
                                   & Development      


Marilyn Caselli            43      10/97 to present - Vice President -
                                   Staten Island Customer Service
                                   5/96 to 9/97 - General Manager - Queens
                                   - Gas Operations
                                   3/96 to 4/96 - General Manager - Gas
                                   Operations - Corrosion Control
                                   2/93 to 2/96 - General Manager -
                                   Brooklyn Administration


V. Richard Conforti        59      8/96 to present - Vice President -
                                   Transportation & Stores
                                   7/92 to 7/96 - Assistant Vice President
                                   - Gas Operations

Richard P. Cowie           51      3/94 to present - Vice President -
                                   Employee Relations
                                   2/91 to 2/94 - Director - Central
                                   Customer Service

Robert F. Crane            61      1/97 to present - Vice President - Gas
                                   Operations
                                   3/94 to 12/96 - Vice President - Fuel
                                   Supply
                                   10/93 to 3/94 - Vice President - Gas
                                   Supply
                                   2/93 to 10/93 - Vice President - Gas
                                   Business Development

Vincent J. D'Amelio        56      10/97 to present - Vice President -
                                   Bronx & Westchester Customer Service
                                   2/97 to 9/97 - Vice President - Staten
                                   Island Customer Service
                                   4/88 to 1/97 - Director - Customer
                                   Service, Sprint Communications Company


Robert W. Donohue, Jr.     55      1/98 to present - Vice President -
                                   Brooklyn & Queens Customer Service
                                   2/94 to 12/97 - Vice President - Queens
                                   Customer Service
                                   3/90 to 2/94 - Vice President -
                                   Construction




Charles J. Durkin, Jr.     54      10/97 to present - Vice President -
                                   Generation Engineering
                                   12/93 to 9/97 - Vice President - Fossil
                                   Power
<PAGE>



                                    - 29 -



Name                       Age     Offices and Positions During Past Five
                                   Years
-----------------------------------------------------------------------------






Jacob Feinstein            55      3/98 to present - Vice President
                                   4/91 to 2/98 - Vice President - System &
                                   Transmission Operations

David F. Gedris            49      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
                                   7/92 to 1/94 - Assistant Vice President
                                   - Power Generation Maintenance


Garrett W. Groscup         57      1/98 to present - Vice President -
                                   Customer Operations
                                   6/95 to 12/97 - Vice President -
                                   Brooklyn Customer Service
                                   2/94 to 5/95 - Vice President - Energy
                                   Services
                                   4/91 to 2/94 - Vice President -
                                   Manhattan Customer Service

William A. Harkins         52      2/97 to present - Vice President -
                                   Energy Management
                                   2/89 to 2/97 - Vice President - Planning
                                   and Inter-Utility Affairs

Paul H. Kinkel             53      1/98 to present - 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.      54      8/96 to present - Vice President -
                                   Environment, Health and Safety
                                   5/95 to 8/96 - Vice President -
                                   Environmental Affairs
                                   1/91 to 4/95 - Manager , General
                                   Electric Company

Richard J. Morgan          62      12/96 to present - Vice President -
                                   Steam Operations
                                   7/92 to 11/96 - Assistant Vice President
                                   - Steam Operations

John A. Nutant             62      2/94 to present - Vice President -
                                   Manhattan Customer Service
                                   7/92 to 1/94 - Vice President - Queens
                                   Customer Service

Stephen E. Quinn           51      1/98 to present - Vice President -
                                   Maintenance and Construction
                                   9/94 to 12/97 - Vice President - Nuclear
                                   Power
                                   8/88 to 8/94 - General Manager - Nuclear
                                   Power Generation

<PAGE>



                                    - 30 -


Name                       Age     Offices and Positions During Past Five
                                   Years



Louis Rana                 49      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
                                   1/93 to 12/93 - General Manager - Queens
                                   Electric Operations
Hyman Schoenblum           49      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
                                   7/88 to 10/93 - Assistant Controller

Edwin W. Scott             59      6/89 to present - Vice President and
                                   Deputy General Counsel

Wanda Skalba               48      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            61      1/98 to present - Vice President -
                                   Substation Operations
                                   6/91 to 12/97 - Vice President - Bronx
                                   Customer Service

Robert P. Stelben          55      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

Alfred R. Wassler          53      8/96 to present - Vice President -
                                   Purchasing
                                   3/94 to 8/96 - Vice President -
                                   Purchasing, Transportation and Stores
                                   7/92 to 2/94 - Vice President -
                                   Purchasing







<PAGE>


                                    - 31 -


                                   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, 1998 there
were 134,168 holders of record of CEI's Common Shares.  For information  about a
$1 billion  repurchase  of CEI Common  Shares,  see " Capital  Requirements  and
Financing" in Item 1. 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 PAID ON
COMMON STOCK

      The following  table shows the market price range of, and  dividends  paid
on, Con  Edison's  Common  Stock  during the periods  indicated.  CEI became the
holding  company  for Con  Edison on January  1, 1998 when the  Holding  Company
Proposal was implemented. See Item 4.

<TABLE>
<CAPTION>
                                                         1997                                      1996
                                        -----------------------------------------------------------------------------
                                                                  Dividends                                 Dividends
                                           High           Low          Paid          High           Low          Paid
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>             <C>           <C>         <C>
1st Quarter                             $32-1/8       $28-1/2      $   .525       $34-3/4       $30-7/8       $   .52
2nd Quarter                              30-3/4        27              .525        32-3/8        27-3/8           .52
3rd Quarter                              34-9/16       29-5/16         .525        29-5/8        25-7/8           .52
4th Quarter                              41-1/2        32-1/4          .525        30-5/8        27-1/2           .52
As of January 31, 1998 there were 134,168 holders of record of common stock.
---------------------------------------------------------------------------------------------------------------------
</TABLE>



      On January 27,  1998, CEI's Board of  Directors  declared a quarterly
dividend  of 53 cents per  Common  Share  which  was paid on March  15,  1998 to
holders of record on February 18, 1998.  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 Con Edison.  CEI
became the  holding  company  for Con Edison on January 1, 1998 when the Holding
Company Proposal was implemented. See Item 4.

<TABLE>
<CAPTION>
Year Ended December 31                                1997          1996          1995          1994          1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>           <C>           <C>           <C>
Operating revenues                                 $  7,121.3    $  6,959.7    $  6,536.9    $  6,373.1    $  6,265.4
Purchased power                                       1,349.4       1,272.9       1,107.2         787.5         812.6
Fuel                                                    596.8         573.3         504.1         567.8         605.2
Gas purchased for resale                                479.2         418.3         259.8         341.2         289.7
Operating income                                      1,045.4       1,013.6       1,041.4       1,036.2         951.1
Net income for common stock                             694.5         688.2         688.3         698.7         622.9
Total assets                                         14,722.5      14,057.2      13,949.9      13,728.4      13,257.4
Long-term debt                                        4,188.9       4,238.6       3,917.2       4,030.5       3,643.9
Preferred stock subject to mandatory redemption          84.6          84.6         100.0         100.0         100.0
Common shareholders' equity                           5,930.1       5,727.6       5,522.7       5,313.0       5,068.5
---------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share        $     2.95    $     2.93    $     2.93    $     2.98    $     2.66
Cash dividends per common share                    $     2.10    $     2.08    $     2.04    $     2.00    $     1.94
---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding (millions)            235.1         235.0         234.9         234.8         234.0
---------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>




                                    - 32 -


ITEM 7.        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 financial  statements  include the
accounts of Con Edison and all wholly-owned  subsidiaries and,  therefore,  also
represent the consolidated financial statements of CEI.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF LIQUIDITY

Cash and temporary  cash  investments  were $183.5  million at December 31, 1997
compared with $106.9 million at December 31, 1996. These balances reflect, among
other  things,  the timing and amounts of external  financing.  In addition,  at
December 31, 1997 Con Edison had set aside $328.9  million for the retirement of
three long-term debt issues.

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 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 debt financings, and may also from time
to time make short-term  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. To  increase  its  financial
flexibility,  Con Edison  initiated a $500 million  commercial  paper program in
January 1998.  Moody's  Investor Service  (Moody's),  Standard and Poor's Rating
Group (S&P) and Fitch IBCA (Fitch) rated Con Edison's  commercial paper P-1, A-1
and F-1, respectively. See Note C to the financial statements.

Con Edison's  customer  accounts  receivable,  less allowance for  uncollectible
accounts, amounted to $581.2 million and $544.0 million at December 31, 1997 and
1996, respectively. The increase at year-end 1997 compared with year-end 1996 is
primarily  attributable  to one less cash  collection  day in 1997 compared with
1996.  In  terms  of  equivalent  days of  revenue  outstanding,  these  amounts
represented 28.2 and 28.6 days, respectively.

Regulatory  accounts  receivable  amounted  to a net  credit to be  refunded  to
customers  of $1.7  million at December  31,  1997  compared  with a  receivable
recoverable  from customers at December 31, 1996 of $45.4 million.  The decrease
at year-end 1997 compared with year-end 1996 is due primarily to the elimination
in 1997 of electric and gas regulatory incentive  mechanisms.  See Note A to the
financial statements.

Deferred charges for Enlightened Energy  (demand-side  management) program costs
amounted  to $117.8  million and $133.7  million at December  31, 1997 and 1996,
respectively.  These costs are  recoverable  from customers under the Settlement
Agreement approved by the Public Service Commission (PSC) as discussed below.

Con Edison's  net cash flows from  operating  activities  for years 1995 through
1997 were as follows:

(Millions of Dollars)                           1997         1996         1995
------------------------------------------------------------------------------
Net cash flows from operating activities    $  1,239     $  1,107     $  1,276
Less: Dividends on common and
       preferred stock                           512          511          515
------------------------------------------------------------------------------
Net after dividends                         $    727     $    596     $    761
------------------------------------------------------------------------------

Net cash  flows in 1997 were  higher  than in 1996 due  principally  to  reduced
operations and maintenance  expenses.  Net cash flows in 1996 were lower than in
1995  due  principally  to  lower  incentive   billings  and  higher  costs  for
recoverable fuel and gas in storage.

FINANCIAL  RATIOS Con Edison's  common equity ratio and interest  coverage ratio
continue to be high compared with the electric  utility industry  generally,  an
indication of Con Edison's  continued  financial  strength.  Con Edison's common
equity  ratio was 56.8  percent  and 55.7  percent  at  year-end  1997 and 1996,
respectively.  Con Edison's  interest  coverage was 4.09 and 4.18 times for 1997
and 1996, respectively. See "Stock Repurchase," below.

DEBT FINANCINGS Con Edison issued a total of $300 million of five-year  floating
rate debentures,  the interest rate on which is reset quarterly: $150 million in
June 1997 and $150 million in December 1996. In July 1995 Con Edison issued $100
million of 10-year 6-5/8% debentures.

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                                      -33-

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 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 February 1998 Con Edison issued $180 million of 10-year 6-1/4% debentures and
$105  million of 30-year  7.10%  debentures,  to refund in March 1998 its 7-1/8%
tax-exempt   debt  issued  through  the  New  York  State  Energy  Research  and
Development  Authority  (NYSERDA),  7-3/8% debentures and 8.05%  debentures.  In
December  1997 Con Edison  issued $330 million of 10-year  6.45%  debentures  to
refund in January 1998 three series of tax-exempt debt issued through NYSERDA.

In March  1996 Con  Edison  refunded  $317  million  of  certain  series  of its
preferred  stock with the proceeds  from the issuance of $275 million of 35-year
7-3/4% subordinated  deferrable interest debentures  (interest payments on which
are tax deductible,  unlike  preferred stock  dividends) and $25 million of cash
balances.  In May  1996  Con  Edison  issued  $100  million  of  30-year  7-3/4%
debentures,  the proceeds of which were used to redeem,  in advance of maturity,
its 9-3/8%  debentures.  In August  1995 Con  Edison  issued  $128.3  million of
25-year 6.10% tax-exempt debt through  NYSERDA,  the proceeds of which were used
to redeem the outstanding 9% tax-exempt debt.

Con Edison used cash  balances to redeem its  outstanding  9.70%  debentures  in
December 1995 and its outstanding convertible preference stock in December 1997.

STOCK  REPURCHASE To realign its capital  structure  with its evolving  business
risk,  CEI  announced  its intent to  repurchase  up to $1 billion of its common
shares,  subject  to PSC  approval  and market  conditions.  The  repurchase  is
expected  to be funded  by Con  Edison  from  internally-generated  funds,  debt
financings and,  depending on the timing,  the net proceeds of generating  plant
sales. The PSC is expected to act on the stock repurchase in March 1998.*

CAPITAL   REQUIREMENTS   The  following  table  compares  Con  Edison's  capital
requirements for the years 1995 through 1997 and estimated  amounts for 1998 and
1999:

(Millions of Dollars)             1999      1998      1997      1996      1995
------------------------------------------------------------------------------
Construction expenditures         $611      $622      $654      $675      $693
Nuclear decommissioning
   trust                            21        21        21        21        19
Nuclear fuel                        35        22        15        49        13
------------------------------------------------------------------------------
Subtotal                           667       665       690       745       725
Retirement of long-term debt
   and preferred stock (a)         225       200       106       184        11
------------------------------------------------------------------------------
Total                             $892      $865      $796      $929      $736
------------------------------------------------------------------------------

(a) Does not include stock repurchases or debt refundings.  See "Refundings" and
    "Stock  Repurchase,"  above. For details of securities  maturing after 1999,
    see Note B to the financial statements.

CEI expects to invest $300  million in 1998 and 1999 in its  subsidiaries  other
than Con Edison, including Consolidated Edison Solutions, Inc., formerly Promark
Energy,  Inc., and Consolidated  Edison  Development,  Inc.,  formerly  Gramercy
Development, Inc.

ELECTRIC CAPACITY RESOURCES

Electric peak load in Con Edison's service area,  adjusted for historical design
weather  conditions,  grew by 250  megawatts  (MW) (2.3  percent) in 1997.  This
growth  reflects  primarily  the robust  local  economy.  Con  Edison's  current
resource  plans  indicate  that  its  service  area  could  require   additional
generation  resources within the next five years.  However,  Con Edison does not
anticipate  adding long-term  capacity  resources to its electric  system.  In a
competitive  electric  market,   unregulated  entities,   possibly  including  a
subsidiary of CEI, are expected to provide needed capacity resources as dictated
by market conditions.

____________
*  The PSC approved the stock repurchase in March 1998.

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                                      -34-


COMPETITION AND INDUSTRY RESTRUCTURING

In recent  years  federal  and New York  State  initiatives  have  promoted  the
development of competition in the sale of electricity  and gas. In general these
initiatives "unbundle," or separate, the integrated supply and delivery services
that  electric  and  gas  utilities  have  traditionally  provided,  and  enable
customers to purchase  electricity  and gas directly from  suppliers  other than
their  local  utility.  Under  these  initiatives  Con Edison  will  continue to
transport and deliver energy to customers in its service area,  including energy
from other  suppliers,  over its electric  and gas  systems.  The rates for such
delivery services are expected to remain regulated on a  cost-of-service  basis.
The  electric  and gas  transportation  and  delivery  systems,  along  with Con
Edison's  steam system,  which will also remain  rate-regulated,  comprised more
than 70 percent of Con  Edison's net utility  plant at December 31, 1997.  These
initiatives  have also  fostered  new  unregulated  energy  supply and  services
businesses  in  which  the  subsidiaries  of  CEI  other  than  Con  Edison  may
participate.  These new businesses  will be subject to competition and different
investment risks than those involved in Con Edison's utility business.

In April 1996 the Federal Energy  Regulatory  Commission (FERC) issued its Order
888  requiring  electric  utilities  to  file   non-discriminatory  open  access
transmission  tariffs that would be available to wholesale sellers and buyers of
electric  energy and  allowing  utilities  to  recover  related  legitimate  and
verifiable  stranded  costs  subject to FERC's  jurisdiction.  Con Edison's open
access  tariff  took effect in July 1996.  The company has billed  approximately
$450,000 under the tariff,  subject to refund pending the outcome of a September
1997 hearing on the tariff before FERC.  FERCis expected to act on the tariff in
1998. In addition,  Con Edison and Con Edison  Solutions have been authorized by
FERC to make wholesale sales of electricity at market-based rates.

In January 1997 Con Edison,  along with the other New York  electric  utilities,
submitted a filing to FERC for  approval  of a  restructuring  of the  wholesale
electric market in New York State, including the establishment of an independent
system operator (ISO) that would control and operate most electric  transmission
facilities in New York as an  integrated  system,  a New York State  Reliability
Council,  which would promulgate  reliability rules, and a "power exchange" that
would  establish  visible spot market prices for wholesale  energy.  In December
1997 Con Edison and the other New York utilities  supplemented  this filing with
additional  details  regarding  the proposed new market  structure and a new ISO
governance structure based upon an unaffiliated ISO board of directors.

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 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). See "PSC Settlement Agreement," below.

All of Con Edison's gas customers,  either  individually or by aggregating their
demand with other  customers,  became  eligible in 1996 to purchase gas directly
from suppliers other than Con Edison.

PSC SETTLEMENT AGREEMENT

The Settlement  Agreement in the Competitive  Opportunities  proceeding 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 (the
Transition), a reasonable opportunity for recovery of "strandable costs" and the
divestiture by Con Edison to  unaffiliated  third parties of at least 50 percent
of its New York City fossil-fueled electric generating capacity.

RETAIL  ACCESS Con Edison will  implement an energy and capacity  retail  access
program that will permit its customers to choose  alternative  energy suppliers.
The  delivery  of  electricity  to  customers  will  continue  to be through Con
Edison's  transmission and distribution  systems. The program will begin in June
1998  with up to 500 MW of  customer  load.  The  program  will be  expanded  in
increments  and 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.

RATE PLAN In January 1998 Con Edison implemented an annualized rate reduction of
$107.5 million pursuant to the rate plan provisions of the Settlement Agreement.
Additional rate decreases will be implemented  during the  Transition.  The rate
plan reduces the total  generation-related  revenues  that Con Edison would have
received over the five-year Transition period had rate levels in effect on March
31, 1997 remained in effect by approximately $1 billion, exclusive of additional
revenue  reductions from lower gross receipts taxes.  Financing savings from any
securitization  of strandable costs, in excess of the amount of the savings that
may be allocated by the PSC for SBC Programs  (defined  below),  and any further
reductions  in New  York  State  gross  receipts  taxes,  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


<PAGE>

                                      -35-

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.

The Settlement Agreement also provides, among other things, for a non-bypassable
system benefits charge to recover,  to the extent not otherwise  recovered,  the
costs of required research and development, energy efficiency programs, programs
to  assist   low-income   customers  and   environmental   protection   programs
(collectively, "SBC Programs"). In addition, the Settlement Agreement includes a
penalty  mechanism  (estimated  maximum,  $26  million  per year) for failure to
maintain certain service quality and reliability standards.

For any rate year during the Transition, 50 percent of any earnings 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 applied for customer benefit,  with one-half
of the amount to be applied to a reduction of rates or as  otherwise  determined
by the PSC and the  balance to be deferred  and  applied to reduce Con  Edison's
generating plant balances through additional  depreciation  expense. The rate of
return  calculation will exclude any incentive  earnings and reflect any amounts
by which the rate of return for  earlier  Transition  rate years fell below 11.9
percent.  This  earnings  sharing will cease  beginning in the year in which Con
Edison fulfills its divestiture commitment or in which 15 percent of the service
area  peak load  (excluding  the  existing  load  served  by the New York  Power
Authority) is supplied by entities other than by Con Edison.

DIVESTITURE  COMMITMENT  Con Edison has agreed to divest to  unaffiliated  third
parties  at  least  50  percent  of its New  York  City  fossil-fueled  electric
generating  capacity  no later  than  December  2002,  and Con Edison may divest
additional  generating capacity. It may be determined that divestiture should be
advanced or delayed (to maximize sales price or address other  developments)  or
that the 50 percent divestiture  commitment is not sufficient to mitigate market
power.  Con Edison's  fossil-fueled  electric  generating  units not divested to
unaffiliated  third parties will be transferred  to an unregulated  affiliate of
Con Edison by December 2002.

Con Edison will submit a detailed divestiture plan to the PSC in March 1998. Con
Edison has agreed to initiate the  divestiture  process with respect to at least
30 percent of its New York City fossil-fueled generating capacity within 90 days
after PSC approval of the  divestiture  plan unless  otherwise  justified in the
divestiture  plan.  The PSC could approve the  divestiture  plan as submitted or
modify it to address market power or other concerns.

Con Edison  will  retain for its  shareholders  the first $50 million of any net
after-tax gains from the divestiture of generating capacity.  Any additional net
gains or net losses from the  divestiture,  or from the transfer to an affiliate
of Con Edison, of generating capacity during the Transition will be deferred for
disposition  by the  PSC.  After  the  Transition  the  difference  between  the
remaining  book value of generating  plant and the net market values  defined by
divestiture will be reflected in the strandable costs to be recovered  following
the Transition.

RECOVERY OF PRIOR INVESTMENTS AND COMMITMENTS Potential strandable costs for Con
Edison  include its  fossil-fueled  generating  plants,  Indian  Point 2 nuclear
generating  unit,  decommissioning  of the Indian Point plant 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.  In addition,  Con Edison will provide for $75 million of
additional  depreciation for its  fossil-fueled  electric  generating units that
also  supply the steam  system.  Also,  as  indicated  above,  certain  "excess"
earnings, if achieved, will be applied as an offset to strandable costs.

The  Settlement  Agreement  provides  that 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 $50  million or net losses from
divestiture  or  transfer  of  Con  Edison  generating  capacity,   including  a
reasonable return on investments,  through a non-bypassable charge to customers.
For remaining  fossil-related  strandable costs, the recovery period will be ten
years and for the Indian Point 2 nuclear unit,  the recovery  period will be the
remaining operating license term of the unit. With respect to its NUG contracts,
Con  Edison  will be  permitted  to recover at least 90 percent of the amount by
which the actual costs of its purchases under the contracts  exceed market value
after the Transition.  Any potential  disallowance  after the Transition 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 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 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 ISO.

<PAGE>
                                      -36-

In October 1997 Con Edison, pursuant to the Settlement Agreement,  requested the
PSC to defer certain costs  related to  agreements to terminate  contracts  with
NUGs for 42.5 MW of capacity.  Including these agreements, Con Edison has, since
1993,  entered into agreements to terminate NUG contracts for  approximately 768
MW at a cost of $281 million (exclusive of interest),  $200 million of which has
already been recovered from customers.  Currently, Con Edison purchases capacity
under NUG  contracts  for plants  with 2,059 MW of  capacity.  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 its
other  subsidiaries,  or pledging its assets as security for the indebtedness of
CEI or any of its affiliates. (See also 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.  Con  Edison  and the other
subsidiaries  must have separate  operating  employees,  and  non-administrative
operating  officers  of Con Edison may not be  operating  officers of any of the
other  subsidiaries.  Transfers  of  employees  from  Con  Edison  to the  other
subsidiaries are also restricted.

ACCOUNTING  EFFECT  As a result of the  Settlement  Agreement,  there  have been
changes to certain of Con Edison's accounting policies. These changes,  however,
did not have a material effect on Con Edison's  financial position or results of
operations. See Note A to the financial statements.

1995 ELECTRIC RATE AGREEMENT

In April 1995 the PSC approved a three-year  electric rate  agreement  effective
April 1, 1995. However,  the Settlement  Agreement  supersedes the provisions of
the 1995 electric rate agreement that prescribe  overall electric revenue levels
for  the 12  months  ending  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  incentive  mechanism  designed to encourage Con Edison to maintain
its high level of service  reliability.  Con Edison  accrued  benefits for these
incentives of $38.4  million in 1995  (including  $17.1  million  related to the
prior year), $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.  Con Edison's earnings,  before federal income tax, under
the PPFAC were  increased  by $19.2  million in 1995 ($6.5  million of which was
earned in the first calendar quarter under similar provisions of a 1992 electric
rate  agreement) and $24.9 million in 1996.  For 1997,  primarily as a result of
unscheduled  outages at its Indian Point 2 nuclear unit,  Con Edison  incurred a
net penalty of $1.8 million, before federal income tax, under the PPFAC.

MODIFIED  ERAM  The  1995  agreement  continued,  in  modified  form,  the  ERAM
rate-making  concept that was established in the 1992  agreement.  See Note A to
the  financial  statements.  For 1995 Con Edison set aside  $35.3  million to be
refunded to customers for revenue overcollections under the ERAM provisions. Con
Edison  accrued  $10.1  million for 1996 and $18.0  million for 1997 for revenue
undercollections under the ERAM provisions.


<PAGE>

                                      -37-

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.

In September 1997 the PSC approved a steam rate agreement between Con Edison and
the PSC staff.  The  three-year  agreement  provides 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 its order approving the steam rate agreement, the PSC modified
the  agreement to require Con Edison to submit a  long-range  plan for the steam
system in time to be considered contemporaneously with the company's divestiture
plan  for  fossil-fueled  generating  capacity.  See "PSC  Settlement  Agreement
Divestiture Commitment," above.

In October 1994 the PSC approved  three-year  rate  agreements for gas and steam
services.  Pursuant to the gas agreement, rates were increased $7.7 million (0.9
percent) for the first rate year and $20.9  million (2.5 percent) for the second
rate year.  Con Edison  accrued  $7.4 million and $9.2 million in 1995 and 1996,
respectively,  for earnings under the incentive provisions of the agreement. The
1997 gas rate agreement superseded the third rate year of the 1994 agreement and
discontinued the incentive  provisions  effective October 1997.  Pursuant to the
steam agreement,  rates were increased $9.9 million (3.0 percent),  $4.6 million
(1.3 percent) and $12.1 million (3.44 percent), respectively, for the three rate
years.

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,  Con Edison,  from time to time,  enters into derivative  financial
instruments  to hedge  interest rate risk.  There were no  derivative  financial
instruments outstanding at December 31, 1997.

The  commodity  price risk relates  primarily to Con Edison's use of  derivative
commodity  instruments  to hedge its gas in  storage.  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,  fuel (to
produce  electricity  and steam) and gas,  because the related  commodity  price
risks are  mitigated  by the fuel  adjustment  provisions  of its  current  rate
agreements.  At  December  31, 1997  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 hedging.

YEAR 2000 EXPOSURE

Many  information  systems  have been  designed to function  based on years that
begin  with 19.  CEI  expects  that by the Year  2000 it will have  adapted  its
systems, to the extent it considers necessary,  to process years that begin with
20, and does not expect  that the costs of doing so will be  material.  However,
the company  cannot  predict the effect on it of any Year 2000 problems of other
entities such as suppliers, customers and service providers.


<PAGE>

                                      -38-

AIR QUALITY

The Clean Air Act  amendments  of 1990  impose  limits  on  sulfur  dioxide  and
nitrogen dioxide emissions from electric generating units. Under the "Reasonably
Available Control  Technology"provisions  of the Clean Air Act, New York and ten
other member states of the Northeast  Ozone  Transport  Commission  have entered
into a  Memorandum  of  Understanding  that  calls for the  states to adopt more
stringent  nitrogen oxide standards.  Con Edison does not expect that compliance
with the  sulfur  dioxide  and  nitrogen  oxide  standards  will have a material
adverse effect on its financial condition, results of operations or liquidity.

In July 1997 the United  States  Environmental  Protection  Agency  adopted  new
ambient air quality standards for ozone and particulate  matter. Con Edison does
not expect that compliance with the ozone standard will have a material  adverse
effect on its  financial  condition,  results of  operations  or  liquidity.  If
ambient air quality monitoring identifies New York City as a non-attainment area
for  the  particulate  matter  standard,   the  New  York  State  Department  of
Environmental  Conservation  (DEC)  will be  required  to adopt  regulations  to
achieve compliance with the standard.  Depending on the regulations,  compliance
with  the  standard   may  require   increased   operating   costs  and  capital
expenditures.

NUCLEAR GENERATION

INDIAN POINT STATION Con Edison has operated its  approximately  1,000 MW Indian
Point 2 nuclear  generating unit since it was first placed into service in 1973.
At December 31, 1997 Indian Point 2 had a net book value of  approximately  $479
million.  See Note A to the  financial  statements  for a discussion of costs of
decommissioning Indian Point 2 and the retired Indian Point 1 unit.

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  Indian  Point 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 Con
Edison's  Indian  Point  2  nuclear  generating  unit.  The PSC is  expected  to
institute a collaborative process to further consider issues raised by an August
1997 PSC staff report on nuclear generating facilities.*

OPERATION Under normal operating conditions, scheduled refueling and maintenance
outages,  such as the outage completed in July 1997, are generally  required for
Indian Point 2 after each cycle of  approximately  22 months of  operation.  The
unit was out of service from January 25, 1997 to March 15, 1997 and has been out
of service since October 15, 1997 for unscheduled maintenance.*

FUEL DISPOSAL The United States  Department of Energy (DOE) has defaulted on its
obligation  under a contract with Con Edison  pursuant to which DOE was to begin
to take title to Con Edison's spent nuclear fuel (SNF) generated at Indian Point
2 as DOE transports the fuel to a federal repository for permanent disposal.  In
July 1996 the United  States Court of Appeals for the District of Columbia  held
that the DOE has an obligation  "reciprocal to the utilities'  obligation to pay
fees,  to start  disposing  of the spent  nuclear fuel no later than January 31,
1998." In January 1997 Con Edison and a number of other utilities petitioned the
court for an order  directing the DOE to begin  acceptance  of SNF,  authorizing
payment  into  escrow  accounts of fees that would  otherwise  be payable to DOE
pursuant to SNF disposal contracts,  and instituting enhanced judicial oversight
of DOE's performance under the contracts.  In November 1997 the court ruled that
the petition was premature pending a determination of whether  provisions of the
contracts would afford an adequate remedy.

________
*   In  March 1998, the PSC instituted a proceeding on nuclear generation and
the NRC  issued a  Confirmatory  Action  Letter  regarding  Indian  Point 2. See
"Electric Facilities - Generating Facilities" in Item 2.

<PAGE>

                                      -39-

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, Con Edison 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 Indian Point 2.

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.

IMPACT OF INFLATION

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

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 and other presently unknown or unforeseen factors.


<PAGE>

                                      -40-

RESULTS OF OPERATIONS

Basic and  diluted  earnings  per share were $2.95 in 1997 and $2.93 in 1996 and
1995. The average  numbers of common shares  outstanding for 1997, 1996 and 1995
were 235.1 million, 235.0 million and 234.9 million, respectively.

The  increase in earnings  for the year 1997 was  primarily  the result of lower
operations   and   maintenance   expenses,   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 1997,  1996 and 1995  reflect  the  electric,  gas and steam  rate
increases  and decreases  and other  provisions  of the related rate  agreements
discussed above.

OPERATING REVENUES AND FUEL COSTS

Operating  revenues  in 1997 and 1996  increased  from the prior  year by $161.5
million and $422.8 million,  respectively. The principal increases and decreases
in revenue were:

                                                           Increase (Decrease)
------------------------------------------------------------------------------
                                                               1997       1996
(Millions of Dollars)                                     over 1996  over 1995
------------------------------------------------------------------------------
Electric, gas and steam rate changes                       $(24.7)      $  0.8
Fuel rider billings*                                        145.0        319.7
Sales volume changes
   Electric**                                                45.0          2.9
   Gas                                                       (8.1)       124.2
   Steam                                                    (28.9)         8.1
Gas weather normalization                                    17.2        (18.5)
Electric:
   ERAM/Modified ERAM accruals                                7.9         45.4
   Recoveries (refunds) of prior rate year ERAM accruals    (18.8)       (25.9)
   Rate refund provisions                                    10.5         (8.2)
   Off-system sales                                         (11.6)        (4.8)
Other                                                        28.0        (20.9)
------------------------------------------------------------------------------
Total                                                      $161.5       $422.8
------------------------------------------------------------------------------

*   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 and
    municipal agencies.


The  increases in fuel  billings in 1997 and 1996 reflect  increases in the unit
costs of purchased  power,  fuel used to produce  electricity and steam, and gas
purchased  for resale.  Electric  fuel costs  increased  $52.0  million in 1997,
primarily because of the increased unit cost of fuel,  partially offset by lower
generation.  Electric  purchased  power costs increased by $50.4 million in 1997
over the 1996 period due to increased purchases.  The increases in electric fuel
and  purchased   power  costs  in  1997  are  also   attributable  to  decreased
availability  of nuclear  generation  from Indian Point 2.  Electric  fuel costs
increased  $23.3  million  in  1996,  reflecting  a  higher  unit  cost of fuel,
partially offset by lower generation.  Electric  purchased power costs increased
by $161.9 million in 1996 over the 1995 period, reflecting a higher unit cost of
power  purchased  under  NUG  contracts.  The  increases  in  electric  fuel and
purchased power costs in 1996 were mitigated by the greater availability in 1996
of nuclear generation from Indian Point 2.

The cost of gas purchased for resale  increased $60.9 million and $158.5 million
in 1997 and 1996,  respectively,  reflecting  higher unit costs of purchased gas
and higher  sendout.  The unit cost of gas was 14 percent  higher in 1997 and 43
percent higher in 1996.  Steam fuel costs decreased $28.4 million in 1997 due to
decreased generation of steam by Con Edison, partially offset by the higher unit
cost of fuel. Steam purchased power costs increased $26.2 million in 1997 due to
increased  purchases and higher unit costs. Steam fuel and purchased power costs
increased $49.7 million in 1996 due to the higher unit cost of fuel.

Electricity sales volume in Con Edison's service territory increased 1.1 percent
in 1997 and 0.8 percent in 1996.  Gas sales volume to firm  customers  decreased
6.2  percent  in 1997 and  increased  8.9  percent  in 1996.  Transportation  of
customer-owned  gas  (other  than  for  the New  York  Power  Authority),  which
comprised approximately 5.4 percent of the gas sold or transported for customers
in 1997,  increased 68.9 percent in 1997 reflecting  increased  purchases of gas
from third party suppliers by Con Edison customers. Steam sales volume decreased
8.6 percent in 1997 and increased 1.9 percent in 1996.

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 1.8 percent in 1997 and
0.9 percent in 1996.  Similarly  adjusted,  gas sales  volume to firm  customers
decreased 0.8 percent in 1997 and increased 1.9 percent in 1996, and steam sales
volume  decreased 1.0 percent in 1997 and 0.1 percent in 1996.  Weather-adjusted
sales represent Con Edison's  estimate of the sales that would have been made if
historical average weather conditions had prevailed.


<PAGE>

                                      -41-

OTHER OPERATIONS AND MAINTENANCE EXPENSES

Other operations and maintenance  expenses decreased 2.4 percent in 1997 and 1.8
percent in 1996.  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 Indian Point 2
outages. For 1996 the decrease reflects lower production  expenses,  principally
because  there was an Indian Point 2 refueling and  maintenance  outage in 1995,
but no outage  in 1996.  The  decrease  was  offset in part by higher  costs for
pensions and retiree benefits due to changes in actuarial assumptions.

In 1997 and 1996 Con Edison  accrued $3 million and $10  million,  respectively,
for environmental  liabilities  related to various Superfund sites.  During 1995
Con Edison accrued $10 million for  environmental  remediation costs relating to
Con  Edison   facilities,   pursuant  to  a  1994  settlement  of  a  DEC  civil
administrative  proceeding against the company, and $5 million for two Superfund
sites. See Note F to the financial  statements for additional  information about
the settlement.

TAXES, OTHER THAN FEDERAL INCOME TAX

At $1.2 billion,  taxes other than federal income tax remain one of Con Edison's
largest  operating  expenses.  The  principal  components  of and  variations in
operating taxes were:

                                                    Increase (Decrease)
-----------------------------------------------------------------------------
                                               1997         1997         1996
(Millions of Dollars)                        Amount    over 1996    over 1995
-----------------------------------------------------------------------------
Property taxes                              $ 590.7      $  19.1      $  37.6
State and local taxes on revenues             474.8          0.9         13.6
Payroll taxes                                  59.3         (1.5)         2.6
Other taxes                                    56.3         (3.6)        (7.8)
-----------------------------------------------------------------------------
Total                                      $1,181.1*     $  14.9      $  46.0
-----------------------------------------------------------------------------

*   Including sales taxes on customers' bills,  total taxes,  other than federal
    income taxes, billed to customers in 1997 were $1,500.6 million.

The increase in property taxes in 1997 reflects an increase in tax rates and the
increase in 1996 reflects higher assessed valuations.

OTHER INCOME

Other income  decreased $3.5 million in 1997 due principally to the start-up and
business   development   expenses  of  Con  Edison   Solutions  and  Con  Edison
Development,  partially  offset by  increased  investment  income.  Other income
decreased $7.5 million in 1996, reflecting primarily lower investment income.

NET INTEREST CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS

Interest on long-term debt  increased  $10.3 million in 1997 and $5.9 million in
1996 principally as a result of new debt issues. The increase in 1996 relates to
the preferred stock refunding discussed above, which  substantially  reduced Con
Edison's preferred stock dividend requirements. Other interest expense decreased
$11.6  million  in  1996,  principally  as a  result  of  lower  interest  costs
associated with certain tax settlements and customer overpayments.

FEDERAL INCOME TAX

Federal income tax decreased $16.5 million in 1997 and $1.4 million in 1996,
reflecting the changes each year in income before tax and in tax credits. See
Note I to the financial statements.

February 24, 1998


<PAGE>


                                    - 42 -


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                           44

      Consolidated Balance Sheet at December 31, 1997
         and 1996                                                 45-46

      Consolidated Income Statement for the years ended
         December 31, 1997, 1996 and 1995                         47

      Consolidated Statement of Cash Flows for the years
         ended December 31, 1997, 1996 and 1995                   48

      Consolidated Statement of Capitalization at
         December 31, 1997 and 1996                               49-50

      Consolidated Statement of Retained Earnings for the
         years ended December 31, 1997, 1996 and 1995             51

      Notes to Consolidated Financial Statements                  51-62

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

      Schedule VIII - Valuation and Qualifying Accounts           63

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

      


<PAGE>


                                    - 43 -

B. Supplementary Financial Information

      Selected Quarterly Financial Data for the years ended December 31, 1997
      and 1996 (Unaudited)

      The  following  table  shows  selected  quarterly  financial  data for Con
Edison.  CEI became the  holding  company for Con Edison on January 1, 1998 when
the Holding Company Proposal was implemented. See Item 4.


<TABLE>
<CAPTION>
                                                                      First        Second         Third        Fourth
1997                                                                Quarter       Quarter       Quarter       Quarter
---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>           <C>           <C>
Operating revenues                                               $  1,886.2    $  1,504.0    $  2,011.0    $  1,720.1
Operating income                                                      247.5         130.0         437.9         230.0
Net income                                                            166.6          47.6         355.0         143.6
Net income for common stock                                           162.0          43.0         350.4         139.1
Basic and diluted earnings per common share                      $      .69    $      .18    $     1.49    $      .59
---------------------------------------------------------------------------------------------------------------------
                                                                      First        Second         Third        Fourth
1996                                                                Quarter       Quarter       Quarter       Quarter
---------------------------------------------------------------------------------------------------------------------
Operating revenues                                               $  1,867.4    $  1,539.7    $  1,920.3    $  1,632.3
Operating income                                                      252.7         152.3         409.4         199.2
Net income                                                            174.5          71.4         328.0         120.2
Net income for common stock                                           182.5          66.8         323.4         115.5
Basic and diluted earnings per common share                      $      .78    $      .28    $     1.38    $      .49
---------------------------------------------------------------------------------------------------------------------
</TABLE>


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


<PAGE>


                                    - 44 -


                      Report of Independent Accountants



To the Stockholders and Boards of Directors (Trustees) of
Consolidated Edison, Inc. and Consolidated Edison Company of New York, Inc.


In our opinion,  the consolidated  financial statements listed under Item 8.A in
the index appearing on page 42 present  fairly,  in all material  respects,  the
financial  position of Consolidated  Edison,  Inc. and its  subsidiaries  and of
Consolidated   Edison   Company  of  New  York,   Inc.   and  its   subsidiaries
(collectively,  the "Company") at December 31, 1997 and 1996, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  31,  1997 in  conformity  with  generally  accepted  accounting
principles.  These financial  statements are the responsibility of the Company's
management;  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 assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.




Price Waterhouse LLP

1177 Avenue of the Americas
New York, N.Y.  10036

February 24, 1998






<PAGE>

                                      -45-

CONSOLIDATED BALANCE SHEET CONSOLIDATED EDISON, INC.

<TABLE>
<CAPTION>
ASSETS
At December 31 (Thousands of Dollars)                                           1997           1996
---------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>
Utility plant, at original cost (Note A)
Electric                                                                 $11,743,745    $11,588,344
Gas                                                                        1,741,562      1,642,231
Steam                                                                        576,206        536,672
General                                                                    1,203,427      1,152,001
---------------------------------------------------------------------------------------------------
Total                                                                     15,264,940     14,919,248
Less: Accumulated depreciation                                             4,392,377      4,285,732
---------------------------------------------------------------------------------------------------
Net                                                                       10,872,563     10,633,516
Construction work in progress                                                292,218        332,333
Nuclear fuel assemblies and components, less accumulated amortization        102,321        101,461
---------------------------------------------------------------------------------------------------
Net utility plant                                                         11,267,102     11,067,310
---------------------------------------------------------------------------------------------------
Current assets
Cash and temporary cash investments (Note A)                                 183,458        106,882
Funds held for refunding of debt                                             328,874              -
Accounts receivable - customer, less allowance for uncollectible
  accounts of $21,600 in 1997 and 1996                                       581,163        544,004
Other receivables                                                             60,759         42,056
Regulatory accounts receivable (Note A)                                       (1,682)        45,397
Fuel, at average cost                                                         53,697         64,709
Gas in storage, at average cost                                               37,209         44,979
Materials and supplies, at average cost                                      191,759        204,801
Prepayments                                                                   75,516         64,492
Other current assets                                                          16,457         15,167
---------------------------------------------------------------------------------------------------
Total current assets                                                       1,527,210      1,132,487
---------------------------------------------------------------------------------------------------
Investments and nonutility property (Note A)                                 292,397        177,224
---------------------------------------------------------------------------------------------------
Deferred charges (Note A)
Enlightened Energy program costs                                             117,807        133,718
Unamortized debt expense                                                     126,085        130,786
Recoverable fuel costs (Note A)                                               98,301        101,462
Power contract termination costs                                              80,978         58,835
Other deferred charges                                                       239,559        271,081
---------------------------------------------------------------------------------------------------
Total deferred charges                                                       662,730        695,882
---------------------------------------------------------------------------------------------------
Regulatory asset - future federal income taxes (Notes A and I)               973,079        984,282
---------------------------------------------------------------------------------------------------
Total                                                                    $14,722,518    $14,057,185
---------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>

                                      -46-

CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
At December 31 (Thousands of Dollars)                                           1997           1996
---------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>
Capitalization (see Consolidated Statement of Capitalization)
Common shareholders' equity                                               $5,930,079     $5,727,568
Preferred stock subject to mandatory redemption (Note B)                      84,550         84,550
Other preferred stock (Note B)                                               233,468        238,098
Long-term debt                                                             4,188,906      4,238,622
---------------------------------------------------------------------------------------------------
Total capitalization                                                      10,437,003     10,288,838
---------------------------------------------------------------------------------------------------
Noncurrent liabilities
Obligations under capital leases                                              39,879         42,661
Other noncurrent liabilities                                                 106,137         80,499
---------------------------------------------------------------------------------------------------
Total noncurrent liabilities                                                 146,016        123,160
---------------------------------------------------------------------------------------------------
Current liabilities
Long-term debt due within one year (Note B)                                  529,385        106,256
Accounts payable                                                             440,114        431,115
Customer deposits                                                            161,731        159,616
Accrued taxes                                                                 65,736         27,342
Accrued interest                                                              85,613         83,090
Accrued wages                                                                 82,556         80,225
Other current liabilities                                                    183,122        147,968
---------------------------------------------------------------------------------------------------
Total current liabilities                                                  1,548,257      1,035,612
---------------------------------------------------------------------------------------------------
Provisions related to future federal income taxes and other deferred
  credits
(Notes A and I)
Accumulated deferred federal income tax                                    2,307,835      2,289,092
Accumulated deferred investment tax credits                                  163,680        172,510
Other deferred credits                                                       119,727        147,973
---------------------------------------------------------------------------------------------------
Total deferred credits                                                     2,591,242      2,609,575
---------------------------------------------------------------------------------------------------
Contingencies (Note F)
---------------------------------------------------------------------------------------------------
Total                                                                    $14,722,518    $14,057,185
---------------------------------------------------------------------------------------------------
</TABLE>

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



<PAGE>

                                      -47-

CONSOLIDATED INCOME STATEMENT CONSOLIDATED EDISON, INC.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                   1997           1996           1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>
Operating revenues (Note A)
Electric                                                                 $ 5,635,575    $ 5,541,117    $ 5,389,408
Gas                                                                        1,093,880      1,015,070        813,356
Steam                                                                        391,799        403,549        334,133
------------------------------------------------------------------------------------------------------------------
Total operating revenues                                                   7,121,254      6,959,736      6,536,897
------------------------------------------------------------------------------------------------------------------
Operating expenses
Purchased power                                                            1,349,421      1,272,854      1,107,223
Fuel                                                                         596,824        573,275        504,104
Gas purchased for resale                                                     479,218        418,271        259,789
Other operations                                                           1,108,845      1,163,159      1,139,732
Maintenance                                                                  474,788        458,815        512,102
Depreciation and amortization (Note A)                                       502,779        496,412        455,776
Taxes, other than federal income tax                                       1,181,081      1,166,199      1,120,232
Federal income tax (Notes A and I)                                           382,910        397,160        396,560
------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                   6,075,866      5,946,145      5,495,518
------------------------------------------------------------------------------------------------------------------
Operating income                                                           1,045,388      1,013,591      1,041,379
------------------------------------------------------------------------------------------------------------------
Other income (deductions)
Investment income (Note A)                                                    11,554          8,327         16,966
Allowance for equity funds used during construction (Note A)                   4,448          3,468          3,763
Other income less miscellaneous deductions                                   (18,696)        (8,749)        (8,149)
Federal income tax (Notes A and I)                                             3,190            970         (1,060)
------------------------------------------------------------------------------------------------------------------
Total other income                                                               496          4,016         11,520
------------------------------------------------------------------------------------------------------------------
Income before interest charges                                             1,045,884      1,017,607      1,052,899
------------------------------------------------------------------------------------------------------------------
Interest on long-term debt                                                   318,158        307,820        301,917
Other interest                                                                17,083         17,331         28,954
Allowance for borrowed funds used during construction (Note A)                (2,180)        (1,629)        (1,822)
------------------------------------------------------------------------------------------------------------------
Net interest charges                                                         333,061        323,522        329,049
------------------------------------------------------------------------------------------------------------------
Net income                                                                   712,823        694,085        723,850
Preferred stock dividend requirements                                        (18,344)       (19,859)       (35,565)
Gain on refunding of preferred stock (Note B)                                      -         13,943              -
------------------------------------------------------------------------------------------------------------------
Net income for common stock                                              $   694,479    $   688,169    $   688,285
------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share                              $      2.95    $      2.93    $      2.93
Average number of shares outstanding during each year
 (235,082,063; 234,976,697 and 234,930,301)
------------------------------------------------------------------------------------------------------------------
</TABLE>

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



<PAGE>

                                      -48-

CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED EDISON, INC.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                                   1997           1996           1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>
Operating activities
Net income                                                               $   712,823    $   694,085    $   723,850
Principal non-cash charges (credits) to income
Depreciation and amortization                                                502,779        496,412        455,776
Deferred recoverable fuel costs                                                3,161        (42,008)       (61,937)
Federal income tax deferred                                                   22,620         40,600         69,020
Common equity component of allowance for funds used during construction       (4,321)        (3,274)        (3,546)
Other non-cash charges                                                        17,268          9,602         14,382
Changes in assets and liabilities
Accounts receivable - customer, less allowance for uncollectibles            (37,159)       (46,789)       (56,719)
Regulatory accounts receivable                                                47,079        (51,878)        32,827
Materials and supplies, including fuel and gas in storage                     31,824        (26,505)        43,341
Prepayments, other receivables and other current assets                      (31,017)         5,117          4,566
Enlightened Energy program costs                                              15,911         10,564         25,919
Power contract termination costs                                              11,551         30,827         55,387
Accounts payable                                                               8,999         10,263         46,383
Other - net                                                                  (62,978)       (19,679)       (72,785)
------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities                                   1,238,540      1,107,337      1,276,464
------------------------------------------------------------------------------------------------------------------
Investing activities including construction
Construction expenditures                                                   (654,221)      (675,233)      (692,803)
Nuclear fuel expenditures                                                    (14,579)       (48,705)       (12,840)
Contributions to nuclear decommissioning trust                               (21,301)       (21,301)       (18,893)
Common equity component of allowance for funds used during construction        4,321          3,274          3,546
------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities including construction             (685,780)      (741,965)      (720,990)
------------------------------------------------------------------------------------------------------------------
Financing activities including dividends
Issuance of long-term debt                                                   480,000        525,000        228,285
Retirement of long-term debt                                                (106,256)      (183,524)       (10,889)
Advance refunding of preferred stock and long-term debt                            -       (412,311)      (155,699)
Issuance and refunding costs                                                  (8,930)       (18,480)        (5,269)
Funds held for refunding of debt                                            (328,874)             -              -
Common stock dividends                                                      (493,711)      (488,756)      (479,262)
Preferred stock dividends                                                    (18,413)       (22,711)       (35,569)
------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities including dividends                (476,184)      (600,782)      (458,403)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments                76,576       (235,410)        97,071
------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at January 1                             106,882        342,292        245,221
------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at December 31                       $   183,458    $   106,882    $   342,292
------------------------------------------------------------------------------------------------------------------
Supplemental  disclosure  of cash flow  information  Cash paid during the period
for:
   Interest                                                              $   310,310    $   309,279    $   309,953
   Income taxes                                                              335,631        346,755        344,754
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>



<PAGE>

                                      -49-

CONSOLIDATED STATEMENT OF CAPITALIZATION CONSOLIDATED EDISON, INC.

<TABLE>
<CAPTION>
At December 31 (Thousands of Dollars)                                                                        1997           1996
--------------------------------------------------------------------------------------------------------------------------------
                                                                             Shares outstanding
                                                                         --------------------------
                                                                         December 31,  December 31,
                                                                                 1997          1996
                                                                         --------------------------
<S>                                                                      <C>           <C>            <C>            <C>
Common shareholders' equity (Note B)
Common stock, $ .10 par value,
   authorized 500,000,000 shares                                          235,489,650   234,993,596   $ 1,482,351    $ 1,478,536
Retained earnings                                                                                       4,484,703      4,283,935
Capital stock expense                                                                                     (36,975)       (34,903)
--------------------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity                                                                       5,930,079      5,727,568
--------------------------------------------------------------------------------------------------------------------------------
Preferred stock (Note B)
Subject to mandatory redemption
Cumulative Preferred, $100 par value,
   7.20% Series I                                                             475,000       475,000        47,500         47,500
   6-1/8% Series J                                                            370,500       370,500        37,050         37,050
--------------------------------------------------------------------------------------------------------------------------------
Total subject to mandatory redemption                                                                      84,550         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        70,612         7,061          7,061
   5-1/4%     Series B                                                        138,438       138,438        13,844         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
Cumulative Preference, $100 par value, authorized 2,250,000 shares
   6% Convertible Series B                                                          -        46,305             -          4,630
--------------------------------------------------------------------------------------------------------------------------------
Total other preferred stock                                                                               233,468        238,098
--------------------------------------------------------------------------------------------------------------------------------
Total preferred stock                                                                                 $   318,018    $   322,648
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



<PAGE>

                                      -50-

<TABLE>
<CAPTION>
At December 31 (Thousands of Dollars)                                                                       1997            1996
--------------------------------------------------------------------------------------------------------------------------------
Long-term debt (Note B)
Maturity                                   Interest Rate      Series
--------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                                   <C>             <C>
Debentures:
1997                                           5.30 %         1993 E                                $          -    $    100,000
1998                                           6-1/4          1993 A                                     100,000         100,000
1998                                           5.70           1993 F                                     100,000         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               -
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          75,000
2005                                           6-5/8          1995 A                                     100,000         100,000
2007                                           6.45           1997 B                                     330,000               -
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         100,000
2029                                           7-1/8          1994 A                                     150,000         150,000
--------------------------------------------------------------------------------------------------------------------------------
Total debentures                                                                                       2,835,000       2,455,000
--------------------------------------------------------------------------------------------------------------------------------
Tax-exempt debt - notes issued to New York State Energy Research and Development Authority for Facilities Revenue Bonds:
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         150,000
2022                                           7-1/8          1987 A                                     100,855         100,855
2022                                           9-1/4          1987 B                                      29,385          29,385
2022                                           5-3/8          1993 C                                      19,760          19,760
2024                                           7-3/4          1989 A                                     150,000         150,000
2024                                           7-3/8          1989 B                                     100,000         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                                                                                  1,635,150       1,635,150
--------------------------------------------------------------------------------------------------------------------------------
Subordinated deferrable interest debentures:
2031                                           7-3/4 %        1996 A                                     275,000         275,000
--------------------------------------------------------------------------------------------------------------------------------
Other long-term debt                                                                                       1,722           8,848
Unamortized debt discount                                                                                (28,581)        (29,120)
--------------------------------------------------------------------------------------------------------------------------------
Total                                                                                                  4,718,291       4,344,878
Less: Long-term debt due within one year                                                                 529,385         106,256
--------------------------------------------------------------------------------------------------------------------------------
Total long-term debt                                                                                   4,188,906       4,238,622
--------------------------------------------------------------------------------------------------------------------------------
Total capitalization                                                                                $ 10,437,003    $ 10,288,838
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*   Rate reset  quarterly.  At  December  31,  1997 the rates for Series 1994 B,
    Series  1996 B and  Series  1997  A  were  5.96484%,  6.0375%  and  5.9975%,
    respectively.

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




<PAGE>

                                      -51-

CONSOLIDATED STATEMENT OF RETAINED EARNINGS CONSOLIDATED EDISON, INC.

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)          1997         1996         1995
-------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>
Balance, January 1                               $4,283,935   $4,097,035   $3,888,010
Net income for the year                             712,823      694,085      723,850
-------------------------------------------------------------------------------------
Total                                             4,996,758    4,791,120    4,611,860
-------------------------------------------------------------------------------------
Dividends declared on capital stock
Cumulative Preferred, at required annual rates       18,146       18,145       35,259
Cumulative Preference, 6% Convertible Series B          198          284          304
Common, $2.10, $2.08 and $2.04 per share            493,711      488,756      479,262
-------------------------------------------------------------------------------------
Total dividends declared                            512,055      507,185      514,825
-------------------------------------------------------------------------------------
Balance, December 31                             $4,484,703   $4,283,935   $4,097,035
-------------------------------------------------------------------------------------
</TABLE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CORPORATE RESTRUCTURING

On January 1, 1998  Consolidated  Edison Company of New York, Inc. (Con Edison),
the regulated  utility,  became a subsidiary of its new parent holding  company,
Consolidated  Edison,  Inc. (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. Con Edison's debt securities and
preferred stock remained securities of Con Edison.

OPERATIONS

CEI, through its subsidiaries,  provides a wide range of energy-related products
and services to its customers.  The principal  subsidiaries,  in addition to Con
Edison, are Con Edison Solutions and Con Edison Development. 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.
It  also  supplies  gas  in  Manhattan,  The  Bronx  and  parts  of  Queens  and
Westchester,  and  steam  in  part  of  Manhattan.  Con  Edison  Solutions  is a
full-service  energy  company  offering  wholesale  and retail  electricity  and
natural gas sales, as well as energy-related products and services, primarily in
the Northeast.  Con Edison Development invests in energy infrastructure projects
and markets technical services worldwide.

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION The accompanying  consolidated  financial statements
include  the  accounts  of Con Edison  and its  wholly-owned  subsidiaries  and,
therefore,  also represent the consolidated  financial statements of CEI and its
wholly-owned subsidiaries. Intercompany transactions have been eliminated.

PSC SETTLEMENT  AGREEMENT The New York State Public Service Commission (PSC), by
order  issued  and  effective  May  20,  1996 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.  The PSC,  by order  issued  and  effective
September 23, 1997, 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 (the  Transition),  a reasonable  opportunity  for
recovery of "strandable costs" and the divestiture by Con Edison to unaffiliated
third parties of at least 50 percent of its New York City fossil-fueled electric
generating capacity.

The "retail  access" plan will  eventually  permit all of Con Edison's  electric
customers to buy electricity from other  suppliers.  The delivery of electricity
to  customers  will  continue  to  be  through  Con  Edison's  transmission  and
distribution  systems. Con Edison's electric  fossil-fueled  generating capacity
not  divested to third  parties will be  transferred  by December 31, 2002 to an
unregulated subsidiary of CEI. Con Edison's contracts with non-utility



<PAGE>

                                      -52-

generators  (NUGs),  absent  renegotiation  of  these  contracts,   will  remain
contractual  obligations of Con Edison,  which could resell electricity provided
under the contracts in the  competitive  energy supply  market.  The  Settlement
Agreement  does not  contemplate  the  divestiture  or transfer of Con  Edison's
Indian  Point 2  nuclear  generating  unit.  In  August  1997 the PSC  solicited
comments as to the future  treatment  of nuclear  generating  facilities  in New
York.

Con  Edison's  potential  electric  "strandable  costs" are those prior  utility
investments and commitments that may not be recoverable in a competitive  energy
supply  market,   including  the  unrecovered  cost  of  Con  Edison's  electric
generating plants,  the future cost of decommissioning  the Indian Point nuclear
generating  station and charges under contracts with NUGs. During the Transition
Con Edison will continue to recover its potential  electric  strandable costs in
the  rates it  charges  all  customers,  including  those  customers  purchasing
electricity  from others.  Following the  Transition  Con Edison will be given a
reasonable opportunity to recover, through a non-bypassable charge to customers,
remaining  strandable costs,  including a reasonable return on investments.  For
remaining fossil-related strandable costs, the recovery period will be 10 years.
For remaining nuclear-related  strandable costs, the recovery period will be the
then-remaining  life of Con Edison's  Indian Point 2 nuclear unit (the operating
license  for which  extends to 2013).  With  respect to its NUG  contracts,  Con
Edison will be permitted  to recover at least 90 percent of the amount,  if any,
by which the actual costs of its  purchases  under the  contracts  exceed market
value  after the  Transition.  potential  NUG  contract  disallowance  after the
Transition  will be limited  to the lower of (i) 10 percent of the  above-market
costs  or  (ii)  $300  million  (net  present  value  in  2002).  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  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).

ACCOUNTING POLICIES The accounting policies of CEI and its subsidiaries  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.

In September 1997 Con Edison  applied the standards in SFAS No. 101,  "Regulated
Enterprises - Accounting for the Discontinuation of Application of the Financial
Accounting Standards Board (FASB) Statement No. 71," to the non-nuclear electric
supply  portion of its  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,  1997,  including
approximately  $196 million  relating to Con Edison's share of the Bowline Point
and Roseton  stations  (which are located  outside New York City and operated by
other  utilities).  The application of SFAS No. 101 to the Deregulated  Business
had no material adverse effect on Con Edison's  financial position or results of
operations.

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.  Con
Edison has not recognized an impairment of its fossil  generating assets 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
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, 1997 regulatory  assets net of regulatory  liabilities  amounted to
approximately $1.4 billion,  of which approximately $300 million is attributable
to the Deregulated Business. Con Edison has not written-off against earnings any
net  regulatory  assets  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.  Con Edison has not accrued a loss for its contracts with
NUGs  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.


<PAGE>

                                      -53-

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 1997, 9.0 percent in 1996 and 9.1
percent  in  1995.  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 on the  straight-line  method for
financial  statement purposes using rates based on average lives and net salvage
factors,  with the  exception of the Indian Point 2 nuclear  unit,  Con Edison's
share of the Roseton generating station,  certain leaseholds and certain general
equipment,  which are  depreciated  on a  remaining  life  amortization  method.
Depreciation  rates averaged  approximately 3.4 percent in 1997 and 1996 and 3.3
percent in 1995.  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-megawatt  (MW)  electric  generating
stations:  (1) Bowline Point,  operated by Orange and Rockland Utilities,  Inc.,
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, 1997 and
1996 was:

(Thousands of Dollars)                                     1997             1996
--------------------------------------------------------------------------------
Bowline Point: Plant in service                        $206,128         $204,484
  Construction work in progress                           1,796            2,788
Roseton: Plant in service                               146,066          146,623
  Construction work in progress                             652              846
--------------------------------------------------------------------------------

Con  Edison's  share of  accumulated  depreciation  for the  Roseton  station at
December 31, 1997 and 1996 was $75.3 million and $70.3 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.  Both  Orange and  Rockland  and
Central  Hudson have agreed to divest  generation  as part of their  Competitive
Opportunities settlements with the PSC.

NUCLEAR   DECOMMISSIONING   Depreciation   charges   include  a  provision   for
decommissioning  both the Indian Point 2 and the retired  Indian Point 1 nuclear
units.  Decommissioning  costs are being accrued ratably over the Indian Point 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.  In 1989 the PSC  permitted  Con  Edison to  establish  an
external trust fund for the costs of decommissioning the nuclear portions of the
plants,   pursuant  to  Nuclear   Regulatory   Commission   (NRC)   regulations.
Accordingly,  beginning  in 1989,  Con Edison has made  contributions  to such a
trust.  The external trust fund is discussed below under  "Investments"  in this
Note A.

Accumulated  decommissioning  provisions  at December  31, 1997 and 1996,  which
include earnings on funds externally invested, were as follows:

                                                             Amounts Included in
                                                        Accumulated Depreciation
--------------------------------------------------------------------------------
(Millions of Dollars)                                     1997              1996
--------------------------------------------------------------------------------
Nuclear                                                $ 211.7           $ 164.7
Non-Nuclear                                               58.2              57.0
--------------------------------------------------------------------------------
Total                                                  $ 269.9           $ 221.7
--------------------------------------------------------------------------------

In 1994 a site-specific  decommissioning  study was prepared for both the Indian
Point 2 and the retired Indian Point 1 nuclear units. Based upon this study, the
estimated decommissioning cost in 1993 dollars is approximately $657 million, of
which $252 million is for extended  on-site storage of spent nuclear fuel. Using
a 3.25 percent annual escalation factor, the estimated cost in 2016, the assumed
midpoint for  decommissioning  expenditures,  is  approximately  $1,372 million.
Under a 1995 electric rate agreement,  effective April 1995, the PSC approved an
annual  decommissioning  expense  allowance  for  the  nuclear  and  non-nuclear
portions of the plants of $21.3 million and $1.8 million,  respectively, to fund
the future  estimated  costs of  decommissioning.  The annual expense  allowance
assumes a 6 percent after-tax annual return on fund assets.

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 present  value,  with a  corresponding  asset in
utility plant, rather than as a component of depreciation. Discussions of issues
addressed in the exposure draft are ongoing.


<PAGE>

                                      -54-

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 $7.4
million in 1997. 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  Revenues  for  electric,  gas and steam  service are  recognized  on a
monthly  billing  cycle  basis.  Pursuant  to the 1992 and  1995  electric  rate
agreements,  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 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 customer service standards.

The 1994 gas rate agreement provided for 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,
after which Con Edison is subject to a penalty (maximum,  $1.7 million per year)
if it fails to maintain targeted levels of customer service.

RECOVERABLE  FUEL COSTS 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.

Effective  April 1992 a partial  pass-through  electric fuel  adjustment  clause
(PPFAC) was  implemented  with monthly  targets for electric  fuel and purchased
power costs.  Con Edison retains for  stockholders  30 percent of any savings in
actual costs below the target amount,  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 Con Edison's  Indian Point 2
nuclear unit.

REGULATORY  ACCOUNTS  RECEIVABLE  Regulatory accounts receivable at December 31,
1997 amounted to a credit due  customers of $1.7 million,  reflecting an accrual
for the PPFAC.  The  amounts  accrued  under the PPFAC are billed or credited to
customers  on a monthly  basis  through the  electric  fuel  adjustment  clause.
Effective  April 1, 1997 the Settlement  Agreement  eliminated the modified ERAM
and the Enlightened  Energy and electric  customer service  incentives;  at that
time,  the  regulatory  accounts  receivable  recorded for the modified ERAM and
these incentives were, along with certain other debit and credit balances in Con
Edison's financial statements, eliminated. The elimination of these balances had
no material  adverse  effect on Con  Edison's  financial  position or results of
operations.

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 $117.8 million at December 31, 1997 and
$133.7  million at  December  31,  1996.  In  accordance  with the 1992 and 1995
electric rate agreements,  deferred  charges for the Enlightened  Energy program
are generally recoverable over a five-year period.

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  1997   investments   consisted   primarily   of  the  nuclear
decommissioning trust fund ($211.7 million at December 31, 1997) and investments
of Con Edison  Solutions and Con Edison  Development  ($66.0 million at December
31,   1997).   For  1996   investments   consisted   primarily  of  the  nuclear
decommissioning  trust fund ($164.7  million at December 31, 1996).  The nuclear
decommissioning  trust  fund is  stated at  market;  investments  of Con  Edison
Solutions and Con Edison Development are stated at cost. 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  purchases put options and sells futures  contracts under
its gas hedging  program in order to protect its gas inventory  against  adverse
market  price  fluctuations.  Con Edison  defers the related  hedging  gains and
losses until the  underlying  gas  commodity is withdrawn  from storage and then
adjusts the cost of its gas in storage accordingly.


<PAGE>

                                      -55-

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, 1997  deferred  gains or losses on open  positions
were not material.

Neither  CEI nor any of its  consolidated  subsidiaries,  including  Con Edison,
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.

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 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.

Con  Edison  and  its  subsidiaries  file,  and  CEI  expects  that  it and  its
subsidiaries will 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 1997, 1996
and  1995,  amounting  to  $25.9  million,  $32.3  million  and  $45.0  million,
respectively,  were charged to operating  expenses.  No research and development
costs were capitalized in these years.

NEW  FINANCIAL  ACCOUNTING  STANDARDS  The FASB has  issued  the  following  two
standards effective for fiscal years beginning after December 15, 1997: SFAS No.
130,  "Reporting  Comprehensive  Income," and SFAS No. 131,  "Disclosures  about
Segments of an Enterprise  and Related  Information."  The  application of these
standards will not have a material effect on CEI's financial position or results
of operations or materially change its current disclosure practices.

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

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

NOTE B CAPITALIZATION

COMMON STOCK AND PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION In December
1997 Con Edison redeemed its Series B preference  stock.  Each share of Series B
preference  stock was convertible into 13 shares of common stock at a conversion
price of $7.69 per share.  During  1997,  1996 and 1995,  38,158  shares,  2,869
shares and 3,928 shares of Series B preference stock were converted into 496,054
shares, 37,297 shares and 51,064 shares of common stock, respectively.

The prices at which Con Edison  has the  option to redeem  its  preferred  stock
other than Series I and Series J (in each case,  plus accrued  dividends) are as
follows:

--------------------------------------------------------------------------------
$5 Cumulative Preferred Stock                                           $ 105.00
--------------------------------------------------------------------------------
Cumulative Preferred Stock:
  Series A                                                              $ 102.00
  Series B                                                                102.00
  Series C                                                                101.00
  Series D                                                                101.00
--------------------------------------------------------------------------------

PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Con Edison is required to redeem
25,000  of the  Series I shares on May 1 of each  year in the  five-year  period
commencing with the year 2002 and to redeem the remaining Series I shares on May
1, 2007. Con Edison is required to redeem the Series J shares on August 1, 2002.
In each case the  redemption  price is $100 per share  plus  accrued  and unpaid
dividends to the  redemption  date. In addition,  Con Edison may redeem Series I
shares at a redemption price of $103.60 per share,  plus accrued  dividends,  if
redeemed prior to May 1, 1998 (and  thereafter at prices  declining  annually to
$100 per share, plus accrued dividends,  after April 30, 2002). Neither Series I
nor Series J shares may be called for redemption  while dividends are in arrears
on outstanding shares of $5 cumulative  preferred stock or cumulative  preferred
stock.



<PAGE>

                                      -56-

PREFERRED STOCK REFUNDING In March 1996 Con Edison canceled  approximately  $227
million of its preferred stock purchased 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.

DIVIDENDS  Beginning  in 1998,  dividends  on CEI's  common  shares  will depend
primarily on the dividends and other distributions that Con Edison and the other
subsidiaries  will  pay to CEI  and  the  capital  requirements  of CEI  and its
subsidiaries.  The PSC 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  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 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 I and 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 In December 1997 Con Edison issued $330 million of 10-year 6.45%
Series 1997 B debentures  to refund in January  1998 three series of  tax-exempt
debt that Con Edison  issued  through  the New York State  Energy  Research  and
Development  Authority:  7-1/2%  Series 1986 A, 9-1/4%  Series 1987 B and 7-3/4%
Series 1989 A.

Long-term debt maturing in the period 1998-2002 is as follows:

--------------------------------------------------------------------------------
1998                                                                $200,000,000
1999                                                                 225,000,000
2000                                                                 275,000,000
2001                                                                 300,000,000
2002                                                                 300,000,000
--------------------------------------------------------------------------------

Con Edison's  long-term  debt is stated at cost which,  as of December 31, 1997,
approximates  fair  value.  The fair value of the  company's  long-term  debt is
estimated based on current rates for debt of the same remaining maturities.

NOTE C SHORT-TERM BORROWING

Con Edison has been  authorized by FERC to issue  short-term  debt of up to $500
million  outstanding  at any one time.  At  December  31, 1997 Con Edison had no
short-term debt outstanding. In January 1998 Con Edison initiated a $500 million
commercial paper program,  supported by revolving credit  agreements with banks.
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 Con Edison's ratio (calculated in accordance
with the  agreements) of debt to total capital not at any time exceed 0.65 to 1.
At December 31, 1997 this ratio was 0.43 to 1.  Borrowings  under the commercial
paper  program  or  the  revolving  credit  facilities  are  expected  to  be at
prevailing market rates.

NOTE D PENSION BENEFITS

Con Edison has 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).  Contributions
are made solely by Con Edison and the other  subsidiaries  based on an actuarial
valuation,  and are not less than the  minimum  amount  required  by ERISA.  Con
Edison's  policy is to fund the  actuarially  computed  net pension cost as such
cost accrues  subject to statutory  maximum (and minimum)  limits.  Benefits are
generally based on a final five-year average pay formula.

In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Con Edison
uses the projected  unit credit  method for  determining  pension cost.  Pension
costs for 1997, 1996 and 1995 amounted to $11.8 million, $73.2 million and $11.4
million,  respectively,  of which $9.3 million for 1997,  $57.8 million for 1996
and $8.9  million  for 1995 was charged to  operating  expenses.  Pension  costs
reflect the amortization of a regulatory asset established  pursuant to SFAS No.
71 to offset the $33.3 million  increase in pension  obligations  from a special
retirement   program  Con  Edison  offered  in  1993,   which  provided  special
termination  benefits as described in SFAS No. 88,  "Employers'  Accounting  for
Settlements   and   Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination  Benefits."  Pension  cost for 1995  also  includes  an  actuarially
determined credit of $7.3 million representing a prepayment on one of the plans.
This credit reduced pension funding in 1996.

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


<PAGE>

                                      -57-

The  components  of net periodic  pension  cost for 1997,  1996 and 1995 were as
follows:

(Millions of Dollars)                                  1997      1996     1995
--------------------------------------------------------------------------------
Service cost - benefits earned
  during the period                                  $ 111.4    $120.2   $ 98.2
Interest cost on projected
  benefit obligation                                   334.3     320.1    296.7
Actual return on plan assets                          (878.6)   (593.6)  (865.8)
Unrecognized investment
  gain (loss) deferred                                 471.3     217.6    521.6
Net amortization                                       (28.8)      6.7    (41.5)
--------------------------------------------------------------------------------
Net periodic pension cost                                9.6      71.0      9.2*
--------------------------------------------------------------------------------
Amortization of regulatory asset                         2.2       2.2      2.2
--------------------------------------------------------------------------------
Total pension cost                                   $  11.8    $ 73.2   $ 11.4
--------------------------------------------------------------------------------
* Includes a prepayment credit of $7.3 million.

The funded  status of the pension  plans as of December 31, 1997,  1996 and 1995
was as follows:

(Millions of Dollars)                          1997         1996         1995
--------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
   Vested                                   $ 3,800.7    $ 3,525.9    $ 3,319.2
   Nonvested                                    175.9        190.5        267.9
--------------------------------------------------------------------------------
   Accumulated to date                        3,976.6      3,716.4      3,587.1
   Effect of projected future
    compensation levels                         964.0        986.6      1,070.3
--------------------------------------------------------------------------------
   Total projected benefit obligation         4,940.6      4,703.0      4,657.4
Plan assets at fair value                     5,988.7      5,269.3      4,775.8
--------------------------------------------------------------------------------
Plan assets less projected
  benefit obligation                          1,048.1        566.3        118.4
Unrecognized net gain                        (1,157.4)      (703.8)      (240.3)
Unrecognized prior service cost*                 90.4        100.1         85.3
Unrecognized net transition liability
  at January 1, 1987*                            11.3         14.3         17.2
--------------------------------------------------------------------------------
Accrued pension cost**                      $    (7.6)   $   (23.1)   $   (19.4)
--------------------------------------------------------------------------------
*  Being amortized over approximately 15 years.

** Accrued liability primarily for special retirement  program,  reduced in 1997
   by a prepayment credit.

To determine the present value of the projected benefit obligation, the discount
rates  assumed  were 7.25  percent for 1997 and 1996 and 7 percent  for 1995.  A
weighted average rate of increase in future  compensation  levels of 5.8 percent
and long-term  rate of return on plan assets of 8.5 percent were assumed for all
years.

The pension plan assets consist  primarily of corporate common stocks and bonds,
group  annuity  contracts  and  debt of the  United  States  government  and its
agencies.

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 provides life  insurance  benefits for  approximately  6,400 retired
employees. All of Con Edison's employees become eligible for these benefits upon
retirement, except that the amount of life insurance is limited and is available
only  to  management  employees  and to  those  bargaining  unit  employees  who
participated  in the  optional  program  prior to  retirement.  Con  Edison  has
reserved the right to amend or terminate these programs.

Con Edison's  policy is to fund in external  trusts the  actuarially  determined
annual costs for retiree health and life insurance  subject to statutory maximum
limits.

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

The cost to Con Edison  for  retiree  health  benefits  for 1997,  1996 and 1995
amounted to $76.7  million,  $89.2 million and $65.5 million,  respectively,  of
which $61.0 million for 1997,  $70.5 million for 1996 and $51.6 million for 1995
was charged to operating  expenses.  The cost of the retiree life insurance plan
for 1997,  1996 and 1995  amounted  to $20.8  million,  $22.8  million and $18.0
million,  respectively,  of which $16.5 million for 1997, $18.0 million for 1996
and $14.2 million for 1995 was charged to operating expenses.


<PAGE>

                                      -58-

The components of  postretirement  benefit (health and life insurance) costs for
1997, 1996 and 1995 were as follows:

(Millions of Dollars)                                1997       1996      1995
-------------------------------------------------------------------------------
Service cost - benefits earned during
  the period                                       $  15.7    $  17.4   $  10.7
Interest cost on accumulated
  postretirement benefit obligation                   71.0       68.9      61.2
Actual return on plan assets                        (100.3)     (51.3)    (60.8)
Unrecognized investment gain
  (loss) deferred                                     63.8       23.5      40.4
Amortization of transition obligation
  and unrecognized net loss                           47.3       53.5      32.0
-------------------------------------------------------------------------------
Net periodic postretirement benefit cost           $  97.5    $ 112.0   $  83.5
-------------------------------------------------------------------------------

The following table sets forth the program's funded status at December 31, 1997,
1996 and 1995:

(Millions of Dollars)                              1997       1996       1995
--------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
   Retirees                                      $ 470.6    $ 471.1    $  447.7
   Employees eligible to retire                    240.1      248.8       250.7
   Employees not eligible to retire                253.4      279.2       305.6
--------------------------------------------------------------------------------
   Total projected benefit obligation              964.1      999.1     1,004.0
Plan assets at fair value                          574.1      444.2       322.2
--------------------------------------------------------------------------------
Plan assets less accumulated
  postretirement benefit obligation               (390.0)    (554.9)     (681.8)
Unrecognized net loss                               41.3      139.9       240.8
Unrecognized net transition liability
  at January 1, 1993*                              322.6      415.0       441.0
--------------------------------------------------------------------------------
Accrued postretirement benefit cost              $ (26.1)   $     0    $      0
--------------------------------------------------------------------------------
* Being amortized over a period of 20 years.

To determine the accumulated  postretirement  benefit  obligation,  the discount
rates  assumed were 7.25  percent for 1997 and 1996 and 7 percent for 1995.  The
assumed long-term rate of return on plan assets was 8.5 percent for these years.
The health care cost trend rate  assumed for 1997 was 8.5  percent,  for 1998, 8
percent,  and then declining one-half percent per year to 5 percent for 2004 and
thereafter.  If the assumed  health care cost trend rate were to be increased by
one  percentage  point  each  year,  the  accumulated   postretirement   benefit
obligation would increase by  approximately  $114.8 million and the service cost
and interest  component of the net  periodic  postretirement  benefit cost would
increase by $12.6 million.

Postretirement  plan assets consist of corporate common stocks and bonds,  group
annuity  contracts,  debt of the United States  government  and its agencies and
short-term securities.

NOTE F CONTINGENCIES

INDIAN POINT Nuclear  generating  units similar in design to Con Edison's Indian
Point 2 unit have  experienced  problems  that  have  required  steam  generator
replacement.  Inspections of the Indian Point 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 the 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  2001.  Con  Edison  has
replacement steam generators,  which are stored at the site.  Replacement of the
steam   generators   would  require   estimated   additional   expenditures   of
approximately $108 million (1997 dollars,  exclusive of replacement power costs)
and an outage of approximately four 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.

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,  1997,  the  highest  amount that could be  assessed  for losses  during the
current policy year under all of the policies was $24 million. While assessments
may also be made for losses in certain  prior years,  Con Edison is not aware of
any losses in such years that it believes are 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 $79.3 million per incident, of which
not more than $10  million may be  assessed  in any one year.  The  per-incident
limit is to be adjusted for inflation not later than 1998 and not less than once
every five years thereafter.

Con  Edison  participates  in an  insurance  program  covering  liabilities  for
injuries to certain workers in the nuclear power industry.  In the event of such
injuries,  Con Edison is subject to  assessment  up to an  estimated  maximum of
approximately $3.1 million.


<PAGE>

                                      -59-

ENVIRONMENTAL  MATTERS The normal course of Con Edison's operations  necessarily
involves activities and substances that expose it to potential liabilities under
federal,  state and local laws protecting the environment.  Such liabilities 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 such potential  liabilities include (but are not
limited to) the Federal Comprehensive  Environmental Response,  Compensation and
Liability Act of 1980  (Superfund),  a 1994  settlement  with the New York State
Department  of  Environmental  Conservation  (DEC),  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  the
investigative,  removal,  remedial and environmental  damage costs (if any) that
Con Edison will be  obligated  to pay with  respect to each of these sites range
from  extremely  preliminary  to highly  refined.  Based on these  estimates Con
Edison had accrued at  December  31, 1997 a  liability  of  approximately  $25.4
million. There will be additional costs with respect to these and possibly other
sites, the materiality of which is not presently determinable.

DEC  SETTLEMENT In 1994 Con Edison  agreed to a consent  order  settling a civil
administrative   proceeding   instituted  by  the  DEC  alleging   environmental
violations  by the  company.  Pursuant  to the  consent  order,  Con  Edison has
conducted an environmental  management  systems  evaluation and an environmental
compliance  audit.  Con Edison also must implement "best  management  practices"
plans for certain  facilities  and  undertake a  remediation  program at certain
sites. At December 31, 1997 Con Edison had an accrued liability of $16.9 million
for these sites. Expenditures for environmental-related  capital projects in the
five years 1998-2002,  including  expenditures to comply with the consent order,
are  estimated at $148  million.  These  estimated  expenditures  do not reflect
divestiture  by Con  Edison of  generating  plants  pursuant  to the  Settlement
Agreement (see Note A) or otherwise.

ASBESTOS  CLAIMS  Suits have been  brought in New York State and federal  courts
against Con Edison and many other defendants, wherein several hundred 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 Con Edison  believes that these amounts are
greatly  exaggerated,  as were the  claims  already  disposed  of.  Based on the
information and relevant  circumstances  known to Con Edison at this time, it is
the  opinion of Con Edison  that  these  suits will not have a material  adverse
effect on the company's financial position, results of operations or liquidity.

EMF Electric and magnetic  fields are found  wherever  electricity  is used. Con
Edison is the defendant in several suits claiming property damage resulting from
EMF. The aggregate  amount sought in these suits is not material.  In the event,
however,  that 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  Con
Edison.

NOTE G NON-UTILITY GENERATORS (NUGS)

Con Edison has contracts with NUGs for 2,059 MW of electric generating capacity.
Payments by Con Edison under the  contracts  are  reflected  in rates.  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 1998 - 2002, capacity and other fixed payments are estimated to be
$510 million,  $508 million,  $478 million,  $485 million and $494 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.

NOTE H STOCK-BASED COMPENSATION

Under  CEI's Stock  Option  Plan,  options  may be granted to  officers  and key
employees for up to 10,000,000 shares of CEI's common stock. Generally,  options
become exercisable three years after the grant date and remain exercisable until
ten years from the grant date.

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


<PAGE>

                                      -60-

Disclosure of pro-forma  information regarding net income and earnings per share
is required by SFAS No. 123. This  information has been determined as if CEI had
accounted  for its employee  stock  options  under the fair value method of that
statement.  The fair  values  of 1997 and 1996  options  are $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 used for grants in 1997 and 1996,  respectively:  risk-free interest
rates of 6.46 percent and 6.74 percent;  expected  lives of eight years for 1997
and 1996; expected  volatility of 14.08 percent and 16.28 percent;  and dividend
yields of 6.67 percent and 7.46 percent.

Had CEI used SFAS No.  123,  basic and diluted  earnings  per share for 1997 and
1996 would be  unaffected  and  pro-forma  net income for common  stock would be
$693,680,000   or  $799,000  less  than  the  amount   reported  for  1997,  and
$687,938,000 or $231,000 less than the amount reported for 1996.

A summary of the status of the Plan as of December 31, 1997 and 1996 and changes
during those years is as follows:

                                                      1997                  1996
                                      ---------------------  -------------------
                                                  Exercise              Exercise
                                        Options      Price    Options      Price
--------------------------------------------------------------------------------
Outstanding at
  beginning of year                     697,200    $27.875          0    $    --
Granted                                 834,600      31.50    704,200     27.875
Exercised                                     0                     0
Forfeited                               (14,100)     29.62     (7,000)    27.875
--------------------------------------------------------------------------------
Outstanding at end
  of year                             1,517,700    $ 29.85    697,200    $27.875
--------------------------------------------------------------------------------
Options exercisable at
  end of year                                 0                     0
Fair value of options
  granted during the year              $   2.84               $  2.49
--------------------------------------------------------------------------------

The following  summarizes  the Plan's stock options  outstanding at December 31,
1997 and 1996:

                                                 Options
Plan                         Exercise        Outstanding               Remaining
Year                            Price        at 12/31/97        Contractual Life
--------------------------------------------------------------------------------
1997                          $ 31.50            827,800                 9 years
1996                          $27.875            689,900                 8 years
--------------------------------------------------------------------------------

NOTE I FEDERAL INCOME TAX

The net revenue  requirements  for the future  federal  income tax  component of
accumulated  deferred federal income taxes (see Note A) at December 31, 1997 and
1996 are shown on the following table:

(Millions of Dollars)                                          1997        1996
--------------------------------------------------------------------------------
Future federal income tax liability
  Temporary differences between the book and
   tax bases of assets and liabilities:
    Property related                                       $5,791.0    $5,595.0
    Reserve for injuries and damages                          (57.4)      (55.7)
    Other                                                    (112.9)       16.7
--------------------------------------------------------------------------------
  Total                                                     5,620.7     5,556.0
--------------------------------------------------------------------------------
Future federal income tax computed at
  statutory rate - 35%                                      1,967.2     1,944.6
Less: Accumulated deferred federal income
    taxes previously recovered                              1,334.7     1,304.8
--------------------------------------------------------------------------------
Net future federal income tax expense
  to be recovered                                             632.5       639.8
--------------------------------------------------------------------------------
Net revenue requirements for above
  (Regulatory asset - future federal income taxes)*           973.1       984.3
Add: Accumulated deferred federal income taxes
    previously recovered
      Depreciation                                          1,188.7     1,115.5
      Unbilled revenues                                       (98.3)      (94.6)
      Advance refunding of long-term debt                      30.1        32.7
      Other                                                   214.2       251.2
--------------------------------------------------------------------------------
   Subtotal                                                 1,334.7     1,304.8
--------------------------------------------------------------------------------
Total accumulated deferred federal income tax              $2,307.8    $2,289.1
--------------------------------------------------------------------------------
* 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,  1997  and  1996  are  $809.4   million  and  $811.8   million,
  respectively.



<PAGE>

                                      -61-

NOTE I FEDERAL INCOME TAX, continued

<TABLE>
<CAPTION>
Year Ended December 31 (Thousands of Dollars)                   1997            1996            1995
-------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Charged to: Operations                                      $   382,910     $   397,160     $   396,560
            Other income                                         (3,190)           (970)          1,060
-------------------------------------------------------------------------------------------------------
Total federal income tax                                        379,720         396,190         397,620
-------------------------------------------------------------------------------------------------------
Reconciliation of reported net income with taxable income
Federal income tax - current                                    357,100         355,590         328,600
Federal income tax - deferred                                    31,450          49,510          78,330
Investment tax credits deferred                                  (8,830)         (8,910)         (9,310)
-------------------------------------------------------------------------------------------------------
Total federal income tax                                        379,720         396,190         397,620
Net income                                                      712,823         694,085         723,850
-------------------------------------------------------------------------------------------------------
Income before federal income tax                              1,092,543       1,090,275       1,121,470
-------------------------------------------------------------------------------------------------------
Effective federal income tax rate                                  34.8%           36.3%           35.5%
-------------------------------------------------------------------------------------------------------
Adjustments decreasing (increasing) taxable income Tax depreciation in excess of
book depreciation:
       Amounts subject to normalization                         215,370         201,760         202,230
       Other                                                    (64,502)        (99,576)        (85,538)
Deferred recoverable fuel costs                                  (3,161)         42,008          61,937
Regulatory accounts receivable                                  (47,079)         51,878         (32,827)
Excess research and development                                  14,980         (13,025)         (2,969)
Pension and other postretirement benefits                        (6,820)        (34,136)         38,102
Power contract termination costs                                (40,657)        (38,759)        (56,397)
Other - net                                                      (9,200)        (45,729)         25,356
-------------------------------------------------------------------------------------------------------
Total                                                            58,931          64,421         149,894
-------------------------------------------------------------------------------------------------------
Taxable income                                                1,033,612       1,025,854         971,576
-------------------------------------------------------------------------------------------------------
Federal income tax - current
Amount computed at statutory rate - 35%                         361,764         359,049         340,052
Tax credits                                                      (4,664)         (3,459)        (11,452)
-------------------------------------------------------------------------------------------------------
Total                                                           357,100         355,590         328,600
-------------------------------------------------------------------------------------------------------
Charged to: Operations                                          359,300         357,000         328,200
            Other income                                         (2,200)         (1,410)            400
-------------------------------------------------------------------------------------------------------
Total                                                           357,100         355,590         328,600
-------------------------------------------------------------------------------------------------------
Federal income tax - deferred
Charged to: Operations                                           32,440          49,070          77,670
            Other income                                           (990)            440             660
-------------------------------------------------------------------------------------------------------
Total                                                       $    31,450     $    49,510     $    78,330
-------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>

                                      -62-

NOTE J FINANCIAL INFORMATION BY BUSINESS SEGMENTS (a)

<TABLE>
<CAPTION>
                                                    Electric                                          Steam
                                    ---------------------------------------          ---------------------------------------
(Thousands of Dollars)                     1997          1996          1995                 1997          1996          1995
---------------------------------------------------------------------------          ---------------------------------------
<S>                                 <C>           <C>           <C>                  <C>           <C>           <C>
Operating revenues*                 $ 5,646,916   $ 5,552,247   $ 5,401,524          $   393,418   $   405,040   $   335,694
---------------------------------------------------------------------------          ---------------------------------------
Operating expenses
Purchased power                       1,319,472     1,269,092     1,107,223               29,949         3,762            --
Fuel                                    429,324       377,351       354,086              167,500       195,924       150,018
Other operations and maintenance*     1,311,983     1,331,801     1,372,715               82,100        83,837        79,929
Depreciation and amortization           429,407       425,397       393,382               16,239        15,900        13,064
Taxes, other than federal income        989,791       980,309       951,095               53,108        51,361        45,788
Federal income tax                      311,878       330,103       339,863                8,442        14,131        12,598
---------------------------------------------------------------------------          ---------------------------------------
Total operating expenses*             4,791,855     4,714,053     4,518,364              357,338       364,915       301,397
---------------------------------------------------------------------------          ---------------------------------------
Operating income                        855,061       838,194       883,160               36,080        40,125        34,297
---------------------------------------------------------------------------          ---------------------------------------
Construction expenditures               504,644       515,006       538,454               29,905        38,290        27,559
---------------------------------------------------------------------------          ---------------------------------------
Net utility plant**                   9,251,149     9,150,261     9,027,031              489,091       458,019       399,028
Fuel                                     51,629        64,231        40,444                2,068           478            62
Other identifiable assets             1,669,957     1,703,906     1,724,005               66,448        42,817        51,969
---------------------------------------------------------------------------          ---------------------------------------
* Intersegment rentals included in segments' income but eliminated for total:

  Operating revenues                $    11,341   $    11,130   $    12,116          $     1,619   $     1,491   $     1,561
  Operating expenses                      2,605         2,472         2,513               12,519        12,190        13,102
----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                      Gas                                              Total
                                    ---------------------------------------          ---------------------------------------
                                           1997          1996          1995                 1997          1996          1995
---------------------------------------------------------------------------          ---------------------------------------
Operating revenues*                 $ 1,096,057   $ 1,017,124   $   815,307          $ 7,121,254   $ 6,959,736   $ 6,536,897
---------------------------------------------------------------------------          ---------------------------------------
Operating expenses
Purchased power                              --            --            --            1,349,421     1,272,854     1,107,223
Fuel                                         --            --            --              596,824       573,275       504,104
Gas purchased for resale                479,218       418,271       259,789              479,218       418,271       259,789
Other operations and maintenance*       204,687       221,011       214,818            1,583,633     1,621,974     1,651,834
Depreciation and amortization            57,133        55,115        49,330              502,779       496,412       455,776
Taxes, other than federal income        138,182       134,529       123,349            1,181,081     1,166,199     1,120,232
Federal income tax                       62,590        52,926        44,099              382,910       397,160       396,560
---------------------------------------------------------------------------          ---------------------------------------
Total operating expenses*               941,810       881,852       691,385            6,075,866     5,946,145     5,495,518
---------------------------------------------------------------------------          ---------------------------------------
Operating income                        154,247       135,272       123,922            1,045,388     1,013,591     1,041,379
---------------------------------------------------------------------------          ---------------------------------------
Construction expenditures               119,672       121,937       126,790              654,221       675,233       692,803
---------------------------------------------------------------------------          ---------------------------------------
Net utility plant**                   1,526,862     1,459,030     1,388,344           11,267,102    11,067,310    10,814,403
Fuel and gas in storage                  37,209        44,979        26,452               90,906       109,688        66,958
Other identifiable assets               165,977       197,033       177,374            1,902,382     1,943,756     1,953,348
Other corporate assets                                                                 1,462,128       936,431     1,115,181
---------------------------------------------------------------------------          ---------------------------------------
Total assets                                                                         $14,722,518   $14,057,185   $13,949,890
---------------------------------------------------------------------------          ---------------------------------------
* Intersegment rentals included in segments' income but eliminated for total:

  Operating revenues                $     2,177   $     2,054   $     1,951          $    15,137   $    14,675   $    15,628
  Operating expenses                         13            13            13               15,137        14,675        15,628
</TABLE>

**    General  Utility  Plant was  allocated to Electric and Gas on the basis of
      the departmental use of such plant. Pursuant to PSC requirements the Steam
      department is charged an interdepartmental  rent for general plant used in
      Steam operations, which is credited to the Electric and Gas departments.
--------------------------------------------------------------------------------
(a)   Con Edison supplies  electric service in all of New York City (except part
      of  Queens)  and  most of  Westchester  County.  It also  supplies  gas in
      Manhattan,  The Bronx and parts of Queens  and  Westchester,  and steam in
      part of Manhattan.



<PAGE>



                                    - 63 -


                                                                   SCHEDULE VIII





                CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

                      VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995

                            (Thousands of Dollars)




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
Description       of Period   Expenses     Accounts   Deductions     of Period

Valuation Accounts
deducted in the balance
sheet from the assets to
which they apply:

Accumulated  Provision 
for uncollectible  
accounts receivable Electric,
Gas and
Steam Customers:

            1997   $ 21,600    $ 30,936      -        $ 30,936*       $ 21,600
            1996   $ 21,600    $ 30,771      -        $ 30,771*       $ 21,600
            1995   $ 21,600    $ 32,589      -        $ 32,589*       $ 21,600


*Accounts written off less cash collections, miscellaneous adjustments and
amounts reinstated as receivables previously written off.


<PAGE>



                                    - 64 -


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 the
joint CEI's and Con Edison's  definitive  joint proxy statement for their Annual
Meetings of  Stockholders  to be held on May 18, 1998. The joint proxy statement
is to be filed pursuant to Regulation 14A not later than 120 days after December
31, 1997, 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

    Consolidated Balance Sheet at December 31, 1997 and 1996

    Consolidated Income Statement for the years ended  December 31,
    1997, 1996 and 1995

    Consolidated Statement of Cash Flows for the years ended  December 31, 1997,
    1996 and 1995

    Consolidated Statement of Capitalization at December 31, 1997 and 1996

    Consolidated Statement of Retained Earnings for the years ended
    December 31, 1997, 1996 and 1995

    Notes to Consolidated Financial Statements


2.  List of Financial Statement Schedules

    Valuation and Qualifying Accounts  (Schedule VIII)




<PAGE>


                               - 65 -



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.

      3.2.1     By-laws of CEI. (Designated in the Registration Statement on 
                Form S-4 of CEI (No. 333-39164) as Exhibit 3.2.)

      3.2.2     By-laws  of Con  Edison,  effective  as of  January  1, 1997.
                (Designated in Con Edison's  Annual Report on Form 10-K for the
                year ended December 31, 1996 (File No. 1-1217) as Exhibit 3.2.)


      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>


                               - 66 -

         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.  Fifth    7/1/89               10-Q    6/30/90   4(a)(6)
            2.  Sixth   11/1/89               10-Q    6/30/90   4(a)(7)
            3.  Seventh  7/1/90               10-Q    6/30/90   4(a)(8)
            4.  Eighth   1/1/91               10-K   12/31/90   4(e)(8)
            5.  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.  Fifth      7/1/89                  10-Q    6/30/90    4(b)(6)
            2.  Sixth      11/1/89                 10-Q    6/30/90    4(b)(7)
            3.  Seventh    7/1/90                  10-Q    6/30/90    4(b)(8)
            4.  Eighth     1/1/91                  10-K    12/31/90   4(g)(8)
            5.  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>


                                     - 67 -


        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 1/4%,  Series 1993 A              8-K   1/13/93      4
            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
            5.70%,   Series 1993 F              8-K   5/19/93      4(b)
            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

       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.)

      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.)


<PAGE>



                                  - 68 -

     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 Orange and
            Rockland Utilities, Inc. 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 Orange and Rockland Utilities,  Inc. 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  August 24,  1982,  between Con
            Edison and Arthur Hauspurg, as amended.  (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).)

     10.5.2 Agreement,  dated  January 24, 1991,  between Con Edison and
            Arthur  Hauspurg.  (Designated in Con Edison's Annual Report on Form
            10-K for the year  ended  December  31,  1990  (File No.  1-1217) as
            Exhibit 10(l).)

     10.6.1 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.)

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

                                          Securities Exchange Act
                  Amendment               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



<PAGE>


                               - 69 -

     10.7.1 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.)

     10.7.2 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.)

     10.7.3 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.)

     10.8.1 Employment  Agreement,  dated November 28, 1995,  between Con
            Edison and Peter J. O'Shea,  Jr.  (Designated in Con Edison's Annual
            Report on Form 10-K for the year ended  December  31, 1995 (File No.
            1-1217) as Exhibit 10.46.)

    *10.8.2 Amendment, dated November 4, 1997  to Employment Agreement, dated
            November 28, 1995, between Con Edison and Peter J. O'Shea, Jr.

     10.9  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.)

     10.10  Amendment  and  Restatement,   dated  January  29,  1992  and
            effective as of December 1, 1991, of The Consolidated Edison Company
            of New York,  Inc.  Executive  Incentive  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(s).)

    10.11.1 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.)

    10.11.2 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

    *10.11.3 Amendment No. 3, dated as of June 1, 1997, to the Consolidated
             Edison Retirement Plan for Management Employees.

    *10.11.4 Amendment No. 4, dated November 14, 1997, to the Consolidated
             Edison Retirement Plan for Management Employees.

    10.12.1 Con Edison Supplemental Retirement Income Plan, adopted July
            22, 1987,  effective  January 1, 1987.  (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(cc).)



<PAGE>


                               - 70 -


   10.12.2  Amendment No. 1, dated March 21,1997, to the
            Con Edison Supplemental Retirement Income Plan.
            (Designated in Con Edison's Annual Report on Form 10-K
            for the year ended December 31, 1996 (File No. 1-1217)
            as Exhibit 10.24.)

   10.13.1  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).)

   10.13.2  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).)

   10.14    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.)

   10.15    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).)

   10.16    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).)

   10.17.1  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).)

   10.17.2  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.)

   10.18.1  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).)

   10.18.2  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

 *10.18.3  Amendment No. 5, dated November 14, 1997, to the
           Consolidated Edison Retiree Health Program for Management
           Employees.



<PAGE>


                                    - 71 -


  10.19     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.)

 *10.20     CEI 1996 Stock Option Plan, as amended and restated
            effective February 24, 1998.

  12        Statement of  computation  of ratio of earnings to fixed  charges
            for the years ended December 31, 1997,  1996,  1995,  1994 and 1993.
            (Designated in the Registration Statement on Form S-3 of CEI (No.
            333-39603) as Exhibit 12.)

  21        Subsidiaries  of CEI and Con Edison.  (Incorporated  by reference 
            from Form U-3A-2 of CEI, dated February 26, 1998 - 
            File No: 069-00425.)

 *23        Consent of Price Waterhouse LLP.

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

 *27        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:

      Con Edison filed Current  Reports on Form 8-K, dated November 24, 1997 and
January 29, 1998,  reporting (under Item 5) the sale of debentures and refunding
of certain series of outstanding debt securities.  CEI and Con Edison each filed
a Current Report on Form 8-K,  dated  December 12, 1997,  reporting the approval
and  implementation of the Holding Company Proposal  discussed in Item 4 and the
stock  repurchase   discussed  In  "Liquidity  and  Capital  Resources  -  Stock
Repurchase" in Item 7.




<PAGE>


                               - 72 -


                                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                By    JOAN S. FREILICH
            Joan S. Freilich                      Joan S. Freilich
            Executive Vice President              Executive Vice President
            and Chief Financial Officer           and Chief Financial Officer


      Date: March 26, 1998                      Date: March 26, 1998

     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 26, 1998          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 26, 1998          Joan S. Freilich*        Executive Vice President,
                                                 Chief Financial Officer
                                                 and Director (Trustee)
                                                 (Principal Financial Officer)

March 26, 1998          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)
                  Arthur Hauspurg*               Director (Trustee)
                  Sally Hernandez-Pinero*        Director (Trustee)
                  Peter W. Likins*               Director (Trustee)
                  Donald K. Ross*                Director (Trustee)
                  Robert G. Schwartz*            Director (Trustee)
                  Richard A. Voell*              Director (Trustee)
                  


March 26, 1998          *By   JOAN S. FREILICH              Attorney-in-Fact
                              Joan S. Freilich