Edgar Filing: CONSOLIDATED EDISON CO OF NEW YORK INC

Commission

File Number

Exact name of registrant as specified in its charter and
principal office address and telephone number

State of
Incorporation

I.R.S. Employer
ID. Number

Consolidated Edison, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

Consolidated Edison Company of New York, Inc.

4 Irving Place, New York, New York 10003

(212) 460-4600

Quarterly Report for the period ending September 30, 2006

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


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

For the quarterly period ended SEPTEMBER 30, 2006

OR

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

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

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


Con Edison


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨



Con Edison of New York


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

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


Con Edison				Yes ¨ No x

Con Edison of New York				Yes ¨ No x

As of the close of business on October 31, 2006 Con Edison had outstanding 256,794,082 Common Shares ($.10 par value). Con Edison owns all of the outstanding common equity of Con Edison of New York.

Filing Format

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and, as such, the information in this report about Con Edison of New York also applies to Con Edison. As used in this report, the term the “Companies” refers to each of the two separate registrants: Con Edison and Con Edison of New York. However, Con Edison of New York makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

TABLE OF CONTENTS


			PAGE
Glossary of Terms			4

PART I—Financial Information
Item 1	Financial Statements (Unaudited)
	Con Edison
		Consolidated Balance Sheet	6
		Consolidated Income Statement	8
		Consolidated Statement of Comprehensive Income	9
		Consolidated Statement of Common Shareholders’ Equity	10
		Consolidated Statement of Cash Flows	11
	Con Edison of New York
		Consolidated Balance Sheet	12
		Consolidated Income Statement	14
		Consolidated Statement of Comprehensive Income	15
		Consolidated Statement of Common Shareholder’s Equity	16
		Consolidated Statement of Cash Flows	17
	Notes to Financial Statements (Unaudited)		18
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
Item 3	Quantitative and Qualitative Disclosures About Market Risk		75
Item 4	Controls and Procedures		75

PART II—Other Information
Item 1	Legal Proceedings		76
Item 1A	Risk Factors		76
Item 6	Exhibits		77
Signatures			78

GLOSSARY OF TERMS

The following is a glossary of frequently used abbreviations or acronyms that are found in the Companies’ SEC reports:


Con Edison Companies
Con Edison		Consolidated Edison, Inc.
Con Edison Communications		Con Edison Communications, LLC
Con Edison Development		Consolidated Edison Development, Inc.
Con Edison Energy		Consolidated Edison Energy, Inc.
Con Edison of New York		Consolidated Edison Company of New York, Inc.
Con Edison Solutions		Consolidated Edison Solutions, Inc.
O&R		Orange and Rockland Utilities, Inc.
Pike		Pike County Light & Power Company
RECO		Rockland Electric Company
The Companies		Con Edison and Con Edison of New York
The Utilities		Con Edison of New York and O&R

Regulatory and State Agencies
DEC		New York State Department of Environmental Conservation
ECAR		East Central Area Reliability Council
EPA		Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
IRS		Internal Revenue Service
ISO-NE		ISO New England
NJBPU		New Jersey Board of Public Utilities
NYISO		New York Independent System Operator
NYPA		New York Power Authority
NYSERDA		New York State Energy Research and Development Authority
PJM		PJM Interconnection
PSC		New York State Public Service Commission
PPUC		Pennsylvania Public Utility Commission
SEC		Securities and Exchange Commission

Other
ABO		Accumulated Benefit Obligation
APB		Accounting Principles Board
AFDC		Allowance for funds used during construction
CO₂		Carbon dioxide
COSO		Committee of Sponsoring Organizations of the Treadway Commission
DIG		Derivatives Implementation Group
District Court		The United States District Court for the Southern District of New York
dths		Dekatherms
EITF		Emerging Issues Task Force
EMF		Electric and magnetic fields
ERRP		East River Repowering Project
FASB		Financial Accounting Standards Board
FIN		FASB Interpretation No.


Other
First Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006
Fitch		Fitch Ratings
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2005
FSP		FASB Staff Position
GHG		Greenhouse gases
kV		Kilovolts
kWh		Kilowatt-hour
LILO		Lease In/Lease Out
LTIP		Long Term Incentive Plan
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
mdths		Thousand dekatherms
MGP Sites		Manufactured gas plant sites
mmlbs		Million pounds
Moody’s		Moody’s Investors Service
MVA		Megavolt amperes
MW		Megawatts or thousand kilowatts
MWH		Megawatt hour
NYAG		New York Attorney General
NUGs		Non-utility generators
OCI		Other Comprehensive Income
PCBs		Polychlorinated biphenyls
PPA		Power purchase agreement
PRP		Potentially responsible party
RCN		RCN Corporation
S&P		Standard & Poor’s Rating Services
SFAS		Statement of Financial Accounting Standards
SO₂		Sulfur dioxide
SSCM		Simplified service cost method
Second Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes
Third Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006
VaR		Value-at-Risk
VIE		Variable interest entity

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	September 30, 2006		December 31, 2005
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	14,270	$	13,586
Gas		3,182		3,044
Steam		1,676		1,624
General		1,580		1,541
TOTAL		20,708		19,795
Less: Accumulated depreciation		4,560		4,355
Net		16,148		15,440
Construction work in progress		1,047		771
NET UTILITY PLANT		17,195		16,211
NON-UTILITY PLANT
Unregulated generating assets, less accumulated depreciation of $121 and $102 in 2006 and 2005, respectively		791		810
Non-utility property, less accumulated depreciation of $35 and $31 in 2006 and 2005, respectively		34		38
Non-utility property held for sale		—		52
Construction work in progress		1		1
NET PLANT		18,021		17,112
CURRENT ASSETS
Cash and temporary cash investments		234		81
Restricted cash		19		15
Accounts receivable - customers, less allowance for uncollectible accounts of $43 and $39 in 2006 and 2005, respectively		809		1,025
Accrued unbilled revenue		112		116
Other receivables, less allowance for uncollectible accounts of $4 and $6 in 2006 and 2005, respectively		463		348
Fuel oil, at average cost		55		47
Gas in storage, at average cost		260		248
Materials and supplies, at average cost		143		130
Prepayments		507		434
Fair value of derivative assets		143		331
Recoverable energy costs		155		221
Current assets held for sale		—		8
Deferred derivative losses		196		9
Other current assets		312		147
TOTAL CURRENT ASSETS		3,408		3,160
INVESTMENTS		272		265
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Goodwill		406		406
Intangible assets, less accumulated amortization of $32 and $24 in 2006 and 2005, respectively		82		90
Prepaid pension costs		1,482		1,474
Regulatory assets		2,193		2,017
Other deferred charges and noncurrent assets		277		324
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		4,440		4,311
TOTAL ASSETS	$	26,141	$	24,848

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

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	September 30, 2006		December 31, 2005
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)	$	7,928	$	7,310
Preferred stock of subsidiary		213		213
Long-term debt		8,066		7,398
TOTAL CAPITALIZATION		16,207		14,921
MINORITY INTERESTS		41		42
NONCURRENT LIABILITIES
Obligations under capital leases		27		30
Provision for injuries and damages		169		167
Pensions and retiree benefits		258		223
Superfund and other environmental costs		266		238
Asset retirement obligations		98		94
Noncurrent liabilities held for sale		—		9
Fair value of derivative liabilities		125		24
Other noncurrent liabilities		42		40
TOTAL NONCURRENT LIABILITIES		985		825
CURRENT LIABILITIES
Long-term debt due within one year		444		22
Notes payable		431		755
Accounts payable		934		1,234
Customer deposits		225		229
Accrued taxes		50		94
Accrued interest		142		102
Accrued wages		85		77
Fair value of derivative liabilities		442		133
Deferred derivative gains		3		224
Deferred income taxes - recoverable energy costs		63		90
Current liabilities held for sale		—		12
Other current liabilities		295		349
TOTAL CURRENT LIABILITIES		3,114		3,321
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		4,016		3,644
Regulatory liabilities		1,753		2,062
Other deferred credits		25		33
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,794		5,739
TOTAL CAPITALIZATION AND LIABILITIES	$	26,141	$	24,848

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

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2006			2005			2006			2005
	(Millions of Dollars/Except Share Data)
OPERATING REVENUES
Electric	$	2,478		$	2,502		$	5,903		$	5,646
Gas		211			232			1,404			1,314
Steam		104			111			485			474
Non-utility		648			492			1,522			1,089
TOTAL OPERATING REVENUES		3,441			3,337			9,314			8,523
OPERATING EXPENSES
Purchased power		1,587			1,522			3,790			3,411
Fuel		200			222			600			553
Gas purchased for resale		100			133			845			786
Other operations and maintenance		556			420			1,433			1,239
Depreciation and amortization		155			147			460			434
Taxes, other than income taxes		328			323			945			874
Income taxes		140			173			310			322
TOTAL OPERATING EXPENSES		3,066			2,940			8,383			7,619
OPERATING INCOME		375			397			931			904
OTHER INCOME (DEDUCTIONS)
Investment and other income		10			11			30			29
Allowance for equity funds used during construction		2			—			3			8
Preferred stock dividend requirements of subsidiary		(3	)		(3	)		(8	)		(8	)
Other deductions		(3	)		(3	)		(12	)		(14	)
Income taxes		11			5			10			10
TOTAL OTHER INCOME (DEDUCTIONS)		17			10			23			25
INTEREST EXPENSE
Interest on long-term debt		123			111			356			330
Other interest		40			9			65			19
Allowance for borrowed funds used during construction		(2	)		—			(4	)		(6	)
NET INTEREST EXPENSE		161			120			417			343
INCOME FROM CONTINUING OPERATIONS		231			287			537			586
LOSS FROM DISCONTINUED OPERATIONS (NET OF INCOME TAXES)		—			(2	)		(1	)		(5	)
NET INCOME	$	231		$	285		$	536		$	581
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	0.93		$	1.17		$	2.17		$	2.41
Discontinued operations		—			—			—			(0.02	)
Net income	$	0.93		$	1.17		$	2.17		$	2.39
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations	$	0.92		$	1.17		$	2.16		$	2.40
Discontinued operations		—			(0.01	)		—			(0.02	)
Net income	$	0.92		$	1.16		$	2.16		$	2.38
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	0.575		$	0.570		$	1.725		$	1.710
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS)		249.0			244.4			247.0			243.5
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)		250.0			245.4			248.0			244.2

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2006			2005		2006			2005
	(Millions of Dollars)
NET INCOME	$	231		$	285	$	536		$	581
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Supplemental pension plan minimum liability adjustments, net of $(3) and $(2) taxes in 2005, respectively		—			—		(4	)		(3	)
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $(17), $22, $(57) and $40 taxes in 2006 and 2005, respectively		(25	)		31		(82	)		58
Less: Reclassification adjustment for gains/(losses) included in net income, net of $(8), $16, $(36) and $23 taxes in 2006 and 2005, respectively		(12	)		23		(52	)		34
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		(13	)		8		(34	)		21
COMPREHENSIVE INCOME	$	218		$	293	$	502		$	602

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)


	Common Stock			Additional Paid-In Capital			Retained Earnings			Treasury Stock				Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
	Shares	Amount		Additional Paid-In Capital			Retained Earnings			Shares	Amount			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
	(Millions of Dollars/Except Share Data)
BALANCE AS OF DECEMBER 31, 2004	242,514,183	$	26	$	2,642		$	5,451		23,210,700	$	(1,001	)	$	(55	)	$	(9	)	$	7,054

Net income								181													181
Common stock dividends								(138	)												(138	)
Issuance of common shares - dividend reinvestment and employee stock plans	476,235				20																20
Other comprehensive income																		22			22
BALANCE AS OF MARCH 31, 2005	242,990,418	$	26	$	2,662		$	5,494		23,210,700	$	(1,001	)	$	(55	)	$	13		$	7,139
Net income								115													115
Common stock dividends								(139	)												(139	)
Issuance of common shares - dividend reinvestment and employee stock plans	948,465		1		43			(4	)												40
Other comprehensive loss																		(9	)		(9	)
BALANCE AS OF JUNE 30, 2005	243,938,883	$	27	$	2,705		$	5,466		23,210,700	$	(1,001	)	$	(55	)	$	4		$	7,146

Net income								285													285
Common stock dividends								(139	)												(139	)
Issuance of common shares - dividend reinvestment and employee stock plans	920,011				41			(5	)												36
Other comprehensive income																		8			8
BALANCE AS OF SEPTEMBER 30, 2005	244,858,894	$	27	$	2,746		$	5,607		23,210,700	$	(1,001	)	$	(55	)	$	12		$	7,336

BALANCE AS OF DECEMBER 31, 2005	245,286,058	$	27	$	2,768		$	5,605		23,210,700	$	(1,001	)	$	(55	)	$	(34	)	$	7,310
Net income								181													181
Common stock dividends								(141	)												(141	)
Issuance of common shares - dividend reinvestment and employee stock plans	456,347				24																24
Stock options					(23	)		35													12
Other comprehensive loss																		(24	)		(24	)
BALANCE AS OF MARCH 31, 2006	245,742,405	$	27	$	2,769		$	5,680		23,210,700	$	(1,001	)	$	(55	)	$	(58	)	$	7,362
Net income								124													124
Common stock dividends								(142	)												(142	)
Issuance of common shares - dividend reinvestment and employee stock plans	491,822				28																28
Other comprehensive income																		3			3
BALANCE AS OF JUNE 30, 2006	246,234,227	$	27	$	2,797		$	5,662		23,210,700	$	(1,001	)	$	(55	)	$	(55	)	$	7,375
Net income								231													231
Common stock dividends								(143	)												(143	)
Issuance of common shares - public offering	9,715,000		1		449										(3	)					447
Issuance of common shares - dividend reinvestment and employee stock plans	633,357				31																31
Other comprehensive loss																		(13	)		(13	)
BALANCE AS OF SEPTEMBER 30, 2006	256,582,584	$	28	$	3,277		$	5,750		23,210,700	$	(1,001	)	$	(58	)	$	(68	)	$	7,928

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

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended September 30,
	2006			2005
	(Millions of Dollars)
OPERATING ACTIVITIES
Net Income	$	536		$	581
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		460			434
Deferred income taxes		299			(2	)
Rate case amortization and accruals		(227	)		(82	)
Common equity component of allowance for funds used during construction		(3	)		(8	)
Prepaid pension costs (net of capitalized amounts)		(41	)		(32	)
Net derivative losses		67			23
Other non-cash items (net)		59			6
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less allowance for uncollectibles		216			(169	)
Materials and supplies, including fuel oil and gas in storage		(33	)		(87	)
Other receivables and other current assets		(276	)		(203	)
Prepayments		(73	)		(539	)
Recoverable energy costs		116			(56	)
Accounts payable		(300	)		264
Pensions and retiree benefits		35			28
Accrued taxes		(44	)		231
Accrued interest		40			17
Deferred charges and other regulatory assets		(163	)		(133	)
Deferred credits and other regulatory liabilities		6			(45	)
Other assets		14			135
Other liabilities		(42	)		252
NET CASH FLOWS FROM OPERATING ACTIVITIES		646			615
INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $(33) and $(8) in 2006 and 2005, respectively)		(1,307	)		(1,055	)
Cost of removal less salvage		(126	)		(133	)
Non-utility construction expenditures		(4	)		(13	)
Common equity component of allowance for funds used during construction		3			8
Increase in restricted cash		(4	)		(2	)
Proceeds from sale of properties		60			534
Proceeds from sale of CEC		39			—
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,339	)		(661	)
FINANCING ACTIVITIES
Net proceeds from/(payments of) short-term debt		(324	)		68
Retirement of long-term debt		(110	)		(239	)
Issuance of long-term debt		1,200			643
Issuance of common stock		485			70
Debt issuance costs		(10	)		(16	)
Common stock dividends		(395	)		(387	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		846			139
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		153			93
BALANCE AT BEGINNING OF PERIOD		81			26
BALANCE AT END OF PERIOD	$	234		$	119
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	324		$	306
Income taxes	$	171		$	79

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	September 30, 2006		December 31, 2005
	(Millions of Dollars)
ASSETS
UTILITY PLANT, AT ORIGINAL COST
Electric	$	13,388	$	12,740
Gas		2,805		2,683
Steam		1,676		1,624
General		1,456		1,418
TOTAL		19,325		18,465
Less: Accumulated depreciation		4,154		3,960
Net		15,171		14,505
Construction work in progress		1,007		739
NET UTILITY PLANT		16,178		15,244
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $16 and $14 in 2006 and 2005, respectively		15		19
NET PLANT		16,193		15,263
CURRENT ASSETS
Cash and temporary cash investments		197		61
Accounts receivable - customers, less allowance for uncollectible accounts of $39 and $35 in 2006 and 2005, respectively		668		880
Other receivables, less allowance for uncollectible accounts of $3 and $5 in 2006 and 2005, respectively		305		224
Accounts receivable from affiliated companies		235		34
Fuel oil, at average cost		44		32
Gas in storage, at average cost		195		183
Materials and supplies, at average cost		112		100
Prepayments		265		417
Fair value of derivative assets		—		175
Recoverable energy costs		135		192
Deferred derivative losses		175		9
Other current assets		128		73
TOTAL CURRENT ASSETS		2,459		2,380
INVESTMENTS		3		3
DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS
Prepaid pension costs		1,482		1,474
Regulatory assets		1,939		1,773
Other deferred charges and noncurrent assets		196		251
TOTAL DEFERRED CHARGES, REGULATORY ASSETS AND NONCURRENT ASSETS		3,617		3,498
TOTAL ASSETS	$	22,272	$	21,144

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


	September 30, 2006		December 31, 2005
	(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder’s equity (See Statement of Common Shareholder’s Equity)	$	7,059	$	6,437
Preferred stock		213		213
Long-term debt		6,755		6,055
TOTAL CAPITALIZATION		14,027		12,705
NONCURRENT LIABILITIES
Obligations under capital leases		27		30
Provision for injuries and damages		162		160
Pensions and retiree benefits		160		122
Superfund and other environmental costs		220		186
Asset retirement obligations		97		93
Fair value of derivative liabilities		42		3
Other noncurrent liabilities		28		29
TOTAL NONCURRENT LIABILITIES		736		623
CURRENT LIABILITIES
Long-term debt due within one year		400		—
Notes payable		150		520
Accounts payable		719		1,013
Accounts payable to affiliated companies		11		23
Customer deposits		211		215
Accrued taxes		49		103
Accrued interest		117		87
Accrued wages		81		70
Fair value of derivative liabilities		196		9
Deferred derivative gains		—		170
Deferred income taxes - recoverable energy costs		55		78
Other current liabilities		251		323
TOTAL CURRENT LIABILITIES		2,240		2,611
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		3,611		3,258
Regulatory liabilities		1,640		1,924
Other deferred credits		18		23
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		5,269		5,205
TOTAL CAPITALIZATION AND LIABILITIES	$	22,272	$	21,144

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2006			2005			2006			2005
	(Millions of Dollars)
OPERATING REVENUES
Electric	$	2,273		$	2,301		$	5,449		$	5,201
Gas		185			209			1,238			1,160
Steam		104			111			485			474
TOTAL OPERATING REVENUES		2,562			2,621			7,172			6,835
OPERATING EXPENSES
Purchased power		982			1,057			2,400			2,440
Fuel		135			131			429			358
Gas purchased for resale		84			110			712			666
Other operations and maintenance		477			352			1,215			1,045
Depreciation and amortization		136			129			404			378
Taxes, other than income taxes		310			305			891			821
Income taxes		117			165			285			300
TOTAL OPERATING EXPENSES		2,241			2,249			6,336			6,008
OPERATING INCOME		321			372			836			827
OTHER INCOME (DEDUCTIONS)
Investment and other income		7			10			21			26
Allowance for equity funds used during construction		2			—			3			8
Other deductions		(3	)		(3	)		(9	)		(9	)
Income taxes		10			1			12			(2	)
TOTAL OTHER INCOME (DEDUCTIONS)		16			8			27			23
INTEREST EXPENSE
Interest on long-term debt		100			87			285			260
Other interest		37			8			56			15
Allowance for borrowed funds used during construction		(2	)		—			(3	)		(6	)
NET INTEREST EXPENSE		135			95			338			269
NET INCOME		202			285			525			581
PREFERRED STOCK DIVIDEND REQUIREMENTS		3			3			8			8
NET INCOME FOR COMMON STOCK	$	199		$	282		$	517		$	573

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2006		2005		2006			2005
	(Millions of Dollars)
NET INCOME	$	202	$	285	$	525		$	581
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Supplemental pension plan minimum liability adjustments, net of $(3) and $(2) taxes in 2005, respectively		—		—		(4	)		(2	)
Unrealized gains/(losses) on derivatives qualified as cash flow hedges, net of $0, $3, $(1) and $(2) taxes in 2006 and 2005, respectively		—		5		(1	)		(3	)
Less: Reclassification adjustment for gains included in net income, net of $1 taxes in 2005		—		—		—			1
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		—		5		(5	)		(6	)
COMPREHENSIVE INCOME	$	202	$	290	$	520		$	575

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(UNAUDITED)


	Common Stock			Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Loss			Total
	(Millions of Dollars/Except Share Data)
BALANCE AS OF DECEMBER 31, 2004	235,488,094	$	589	$	1,802	$	4,748		$	(962	)	$	(55	)	$	(6	)	$	6,116

Net income							173												173
Common stock dividend to parent							(111	)											(111	)
Cumulative preferred dividends							(3	)											(3	)
Other comprehensive income																5			5
BALANCE AS OF MARCH 31, 2005	235,488,094	$	589	$	1,802	$	4,807		$	(962	)	$	(55	)	$	(1	)	$	6,180

Net income							124												124
Common stock dividend to parent							(52	)											(52	)
Cumulative preferred dividends							(3	)											(3	)
Other comprehensive loss																(16	)		(16	)
BALANCE AS OF JUNE 30, 2005	235,488,094	$	589	$	1,802	$	4,876		$	(962	)	$	(55	)	$	(17	)	$	6,233

Net income							284												284
Common stock dividend to parent							(95	)											(95	)
Cumulative preferred dividends							(2	)											(2	)
Other comprehensive income																5			5
BALANCE AS OF SEPTEMBER 30, 2005	235,488,094	$	589	$	1,802	$	5,063		$	(962	)	$	(55	)	$	(12	)	$	6,425

BALANCE AS OF DECEMBER 31, 2005	235,488,094	$	589	$	1,802	$	5,074		$	(962	)	$	(55	)	$	(11	)	$	6,437

Net income							205												205
Common stock dividend to parent							(113	)											(113	)
Cumulative preferred dividends							(3	)											(3	)
Other comprehensive loss																(5	)		(5	)
BALANCE AS OF MARCH 31, 2006	235,488,094	$	589	$	1,802	$	5,163		$	(962	)	$	(55	)	$	(16	)	$	6,521

Net income							119												119
Common stock dividend to parent							(115	)											(115	)
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF JUNE 30, 2006	235,488,094	$	589	$	1,802	$	5,164		$	(962	)	$	(55	)	$	(16	)	$	6,522

Net income							202												202
Common stock dividend to parent							(109	)											(109	)
Capital contribution by parent					450								(3	)					447
Cumulative preferred dividends							(3	)											(3	)
BALANCE AS OF SEPTEMBER 30, 2006	235,488,094	$	589	$	2,252	$	5,254		$	(962	)	$	(58	)	$	(16	)	$	7,059

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

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended September 30,
	2006			2005
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$	525		$	581
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		404			378
Deferred income taxes		296			(22	)
Rate case amortization and accruals		(227	)		(82	)
Common equity component of allowance for funds used during construction		(3	)		(8	)
Prepaid pension costs (net of capitalized amounts)		(41	)		(32	)
Other non-cash items (net)		2			4
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable - customers, less allowance for uncollectibles		212			(102	)
Materials and supplies, including fuel oil and gas in storage		(36	)		(66	)
Other receivables and other current assets		(324	)		(206	)
Prepayments		152			(532	)
Recoverable energy costs		117			(48	)
Accounts payable		(290	)		194
Pensions and retiree benefits		38			30
Accrued taxes		(54	)		268
Accrued interest		30			10
Deferred charges and other regulatory assets		(168	)		(131	)
Deferred credits and other regulatory liabilities		8			(42	)
Other assets		—			145
Other liabilities		(33	)		210
NET CASH FLOWS FROM OPERATING ACTIVITIES		608			549
INVESTING ACTIVITIES
Utility construction expenditures (excluding capitalized support costs of $(33) and $(8) in 2006 and 2005, respectively)		(1,233	)		(1,001	)
Cost of removal less salvage		(124	)		(131	)
Common equity component of allowance for funds used during construction		3			8
Proceeds from sale of properties		60			534
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,294	)		(590	)
FINANCING ACTIVITIES
Net (payments of)/proceeds from short-term debt		(370	)		22
Retirement of long-term debt		(100	)		(228	)
Issuance of long-term debt		1,200			601
Debt issuance costs		(10	)		(16	)
Capital contribution by parent		447			—
Dividend to parent		(337	)		(258	)
Preferred stock dividends		(8	)		(8	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		822			113
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		136			72
BALANCE AT BEGINNING OF PERIOD		61			10
BALANCE AT END OF PERIOD	$	197		$	82
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	256		$	240
Income taxes	$	183		$	138

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

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (Con Edison of New York). Con Edison of New York is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the Con Edison of New York consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to Con Edison of New York and O&R.

As used in these notes, the term “Companies” refers to Con Edison and Con Edison of New York and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, Con Edison of New York makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2005 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2006 (the First Quarter Form 10-Q) and June 30, 2006 (the Second Quarter Form 10-Q). Information in the notes to the consolidated financial statements in the Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q referred to in these notes is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made. Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of results for the entire fiscal year.

Con Edison has two regulated utility subsidiaries: Con Edison of New York and O&R. Con Edison of New York provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that owns and operates generating plants and participates in other infrastructure projects.

Note A - Earnings Per Common Share

Reference is made to “Earnings per Common Share” in Note A to the financial statements included in Item 8 of the Form 10-K. For the three and nine months ended September 30, 2006 and 2005, Con Edison’s basic and diluted EPS are calculated as follows:


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(Millions of Dollars, except per share amounts/Shares in Millions)	2006		2005			2006			2005
Income from continuing operations	$	231	$	287		$	537		$	586
Loss from discontinued operations, net of tax		—		(2	)		(1	)		(5	)
Net income		231		285			536			581
Weighted average common shares outstanding - Basic		249.0		244.4			247.0			243.5
Add: Incremental shares attributable to effect of potentially dilutive securities		1.0		1.0			1.0			0.7
Adjusted weighted average common shares outstanding - Diluted		250.0		245.4			248.0			244.2
EARNINGS PER COMMON SHARE - BASIC
Continuing operations	$	0.93	$	1.17		$	2.17		$	2.41
Discontinued operations		—		—			—			(0.02	)
Net income	$	0.93	$	1.17		$	2.17		$	2.39
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations	$	0.92	$	1.17		$	2.16		$	2.40
Discontinued operations		—		(0.01	)		—			(0.02	)
Net income	$	0.92	$	1.16		$	2.16		$	2.38

Note B - Regulatory Matters

Reference is made to “Accounting Policies” in Note A and “Rate and Restructuring Agreements” in Note B to the financial statements in Item 8 of the Form 10-K and Note B to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q and Second Quarter Form 10-Q.

Rate and Restructuring Agreements

O&R - Gas

In October 2006, the New York State Public Service Commission (PSC) approved the June 2006 settlement agreement among O&R, the staff of the PSC and other parties. The settlement agreement establishes a rate plan that covers the three-year period November 1, 2006 through October 31, 2009.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The rate plan provides for rate increases in base rates of $12 million in the first year, $0.7 million in the second year and $1.1 million in the third year. To phase-in the effect of the increase for customers, the rate plan provides for O&R to accrue revenues for, but defer billing to customers of, $5.5 million of the first rate year rate increase by establishing a regulatory asset which, together with interest, will be billed to customers in the second and third years. As a result, O&R’s billings to customers will increase $6.5 million in each of the first two years and $6.3 million in the third. The first year rate increase includes $2.3 million relating to a change in the way customers are provided the benefit of non-firm revenue from sales of pipeline transportation capacity. Under the prior rate plan, base rates were reduced to reflect the assumption that the company would realize these revenues. Under the new rate plan, such revenues will be used to offset the cost of gas to be recovered from customers. The rate plan continues the provisions pursuant to which the company recovers its cost of purchasing gas.

The rate plan provides that if the actual amount of pension or other postretirement benefit costs, environmental remediation costs, property taxes and certain other costs vary from the respective amount for each such cost reflected in gas rates, the company will defer recognition of the variation in income and, as the case may be, establish a regulatory asset or liability for recovery from, or refund to, customers of the variation (86 percent of the variation, in the case of property tax differences due to assessment changes).

The company may earn more in a rate year than the 9.8 percent return on common equity reflected in the rate plan pursuant to the plan’s earnings sharing provisions. Earnings attributable to its gas business, excluding any penalties, (O&R Adjusted Earnings) up to an 11 percent annual return on common equity (based upon the actual average common equity ratio, subject to a maximum 50 percent of capitalization) are retained by the company. O&R Adjusted Earnings above an 11 percent return are to be used to offset up to one-half of any regulatory asset resulting from the cost reconciliations (discussed in the preceding paragraph). One-half of any remaining O&R Adjusted Earnings between 11 and 12 percent return are retained by the company, with the balance being deferred for the benefit of customers. Thirty-five percent of any remaining O&R Adjusted Earnings between a 12 and 14 percent return are retained by the company, with the balance deferred for the benefit of customers. Any remaining O&R Adjusted Earnings above a 14 percent return are to be deferred for the benefit of customers. The earnings sharing thresholds will each be reduced by 20 basis points if certain objectives relating to the company’s retail choice program are not met.

The rate plan also includes up to $1 million of potential penalties in the first year of the agreement, increasing up to $1.2 million in the third year, if the company does not comply with certain requirements regarding safety and customer service.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Con Edison of New York - Gas

On November 2, 2006, Con Edison of New York filed a request with the PSC for a net increase in the rates it charges for gas service, effective October 1, 2007, of $197 million. The filing reflects a return on common equity of 11.6 percent and a common equity ratio of 48.3 percent. The filing includes a proposal for a three-year rate plan, with additional increases effective October 1, 2008 and 2009 of $39 million and $49 million, respectively. The filing proposes continuation of the current gas rate plan provisions with respect to recovery from customers of the cost of purchased gas, environmental remediation expenses and the reconciliation of actual expenses allocable to the gas business to the amounts for such costs reflected in gas rates for pension and other postretirement benefit costs, property taxes and interference costs.

Con Edison of New York - Steam

In September 2006, the PSC approved the June 2006 settlement agreement among Con Edison of New York, the staff of the PSC and other parties. The settlement agreement establishes a rate plan that covers the two-year period October 1, 2006 through September 30, 2008. The rate plan provides for no changes in base rates or in the rate provisions pursuant to which the company recovers its fuel and purchased steam costs (the fuel adjustment clause), except for changes in the manner in which certain costs are recovered. Currently, carrying costs (return on investment, depreciation and property and other taxes) for the East River Repowering Project (ERRP), which at June 30, 2006 had a book value, net of accumulated depreciation, of approximately $726 million, are allocated between the company’s electric and steam businesses, and the steam business’s share is recovered under the fuel adjustment clause. Beginning October 2007, the steam business’s share of allowed ERRP carrying charges will be recovered through base rates.

The rate plan provides that if the actual amount of pension or other postretirement benefit costs, environmental remediation costs, property taxes or interference costs is greater than the respective amount for each such cost reflected in steam rates, the company will recognize a regulatory asset for the difference (90 percent of the difference, in the case of property taxes and interference costs) and defer recognition in expense of the difference. If, however, the actual amount of such costs is less than the amount reflected in steam rates, the company will recognize a regulatory liability for the difference and decrease its revenues by the amount of such difference (90 percent of the difference, in the case of property taxes and interference costs).

The company may earn more than the 9.8 percent return on common equity reflected in the rate plan pursuant to the plan’s earnings sharing provisions. Earnings attributable to its steam business, excluding the net revenue effect of steam sales related to colder-than-normal weather and certain other items, (Adjusted Earnings) for a rate year up to 11 percent are retained by the company. Adjusted

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Earnings between an 11 and 12 percent return on common equity (based upon the actual average common equity ratio, subject to a maximum of 50 percent of capitalization) are to be used to offset up to one-half of any regulatory asset resulting from the cost reconciliations (discussed in the preceding paragraph) for the rate year. The company will retain one-half of any remaining such Adjusted Earnings, with the balance being deferred for the benefit of customers. Any Adjusted Earnings in excess of a 12 percent return on common equity are to be used to offset any regulatory asset resulting from the cost reconciliations, with the company retaining one-quarter of any remaining Adjusted Earnings and the balance being deferred for the benefit of customers. The earnings sharing thresholds will each be reduced by 20 basis points if certain requirements are not met.

The rate plan also includes up to approximately $4 million of potential penalties if the company does not comply with certain requirements regarding steam business development and certain other matters.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 30, 2006 and December 31, 2005 were comprised of the following items:


	Con Edison					Con Edison of New York
(Millions of Dollars)	2006		2005			2006		2005
Regulatory assets
Future federal income tax	$	993	$	952		$	940	$	902
Environmental remediation costs		282		241			223		182
World Trade Center restoration costs		142		127			142		127
Pension and other postretirement benefits deferrals		132		96			77		46
O&R transition bond charges		68		70			—		—
Recoverable energy costs		60		120			60		120
Net T&D reconciliation		58		38			58		38
Revenue taxes		56		59			56		59
Workers’ compensation		45		42			45		42
Unbilled gas revenue		44		44			44		44
Deferred derivative losses - long-term		42		—			35		—
Electric rate increase accrual		30		—			30		—
Asbestos-related costs		25		25			25		25
Other retirement program costs		21		24			21		24
Electric cost reconciliations		—		(47	)		—		(47	)
Other		195		226			183		211
Regulatory Assets		2,193		2,017			1,939		1,773
Deferred derivative losses - current		196		9			175		9
Recoverable energy costs - current		155		221			135		192
Total Regulatory Assets	$	2,544	$	2,247		$	2,249	$	1,974
Regulatory liabilities
Allowance for cost of removal less salvage	$	503	$	558		$	445	$	501
Gain on sale of First Avenue properties		254		256			254		256
Net electric deferrals		215		288			215		288
EPA SO₂ allowance proceeds - electric and steam		108		76			108		76
2004 electric, gas and steam one-time rate plan charges		96		121			96		121
Prior year deferred tax amortization		81		81			81		81
Transmission congestion contracts		58		163			58		163
Gain on sale of W. 24^th St. property		47		—			47		—
NYS tax law changes		45		51			33		39
Interest on federal income tax refund		41		41			41		41
O&R refundable energy costs		30		40			—		—
Property tax reconciliation		30		31			30		31
DC service incentive		15		17			15		17
Gas interruptible sales credits		10		8			10		8
Deferred derivative gains - long-term		—		75			—		59
NYISO reconciliation		—		20			—		20
Earnings sharing reserve		—		7			—		7
Other		220		229			207		216
Regulatory Liabilities		1,753		2,062			1,640		1,924
Deferred derivative gains - current		3		224			—		170
Total Regulatory Liabilities	$	1,756	$	2,286		$	1,640	$	2,094

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

“Net electric deferrals” represents the remaining unamortized balance of certain regulatory assets and liabilities of Con Edison of New York that were combined effective April 1, 2005 and are being amortized to income over the period April 2005 through March 2008, in accordance with Con Edison of New York’s 2005 Electric Rate Agreement.

In June 2006, in accordance with Con Edison of New York’s 2005 Electric Rate Agreement, the company settled $141 million of regulatory liabilities against an equal amount of regulatory assets. The regulatory liabilities settled consisted primarily of Adjusted Earnings (as defined in Note B to the financial statements in Item 8 of the Form 10-K) for the rate year ending March 31, 2006 in excess of the specified level, refunds received from the New York Independent System Operator, amounts collected from customers in excess of amounts reflected in rates for property taxes and the costs of moving facilities to avoid interfering with government projects (interference costs). The regulatory assets recovered consisted primarily of deferred pension and other postretirement benefit costs, environmental remediation costs and carrying charges for excess transmission and distribution charges.

Note C – Long-Term Debt

Reference is made to Note C to the financial statements in Item 8 of the Form 10-K and in Part I, Item 1 of the Second Quarter Form 10-Q.

In September 2006, Con Edison of New York issued $400 million of 5.50 percent, 10-year debentures, the proceeds of which were used in October 2006 to refund in advance of maturity $400 million of 7.50 percent, 40-year debentures. In October 2006, O&R issued $75 million of 5.45 percent, 10-year debentures.

Note D – Short Term Borrowing and Credit Agreements

Reference is made to Note D to the financial statements in Item 8 of the Form 10-K and Note C to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q and Note D to the financial statements in Part I, Item 1 of the Second Quarter Form 10-Q.

At September 30, 2006, Con Edison had $431 million of commercial paper outstanding of which $150 million was outstanding under Con Edison of New York’s program. The weighted average interest rate for the nine-month period was 4.95 percent and 4.97 percent for Con Edison and Con Edison of New York, respectively. At September 30, 2006, no loans were outstanding under any of the credit agreements and $15.6 million of letters of credit had been issued.

Note E – Pension Benefits

Reference is made to Note E to the financial statements in Item 8 of the Form 10-K.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and nine months ended September 30, 2006 and 2005 were as follows:


	For the Three Months Ended September 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2006			2005			2006			2005
Service cost - including administrative expenses	$	32		$	29		$	30		$	27
Interest cost on projected benefit obligation		116			108			108			101
Expected return on plan assets		(155	)		(161	)		(149	)		(155	)
Amortization of net actuarial loss		31			21			26			16
Amortization of prior service cost		3			3			3			3
NET PERIODIC BENEFIT COST/(CREDIT)	$	27		$	—		$	18		$	(8	)
Amortization of regulatory asset*		1			1			1			1
TOTAL PERIODIC BENEFIT COST/(CREDIT)	$	28		$	1		$	19		$	(7	)
Cost capitalized		(8	)		—			(6	)		2
Cost deferred		(27	)		(12	)		(24	)		(10	)
Cost credited to operating expenses	$	(7	)	$	(11	)	$	(11	)	$	(15	)

*	Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.


	For the Nine Months Ended September 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2006			2005			2006			2005
Service cost - including administrative expenses	$	99		$	88		$	92		$	81
Interest cost on projected benefit obligation		345			323			323			302
Expected return on plan assets		(465	)		(482	)		(447	)		(464	)
Amortization of net actuarial loss		94			61			78			48
Amortization of prior service cost		10			10			9			9
NET PERIODIC BENEFIT COST/(CREDIT)	$	83		$	—		$	55		$	(24	)
Amortization of regulatory asset*		3			3			3			3
TOTAL PERIODIC BENEFIT COST/(CREDIT)	$	86		$	3		$	58		$	(21	)
Cost capitalized		(25	)		1			(19	)		6
Cost deferred		(85	)		(35	)		(75	)		(26	)
Cost credited to operating expenses	$	(24	)	$	(31	)	$	(36	)	$	(41	)

*	Relates to increases in Con Edison of New York’s pension obligations of $33 million from a 1993 special retirement program and $45 million from a 1999 special retirement program.

Expected Contributions

Based on current estimates, the Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2006. The Companies’ policy however is to fund their accounting cost to the extent such funding is tax deductible. Con Edison and Con Edison of New

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

York made discretionary contributions of $98 million and $63 million, respectively, to the pension plan during 2006. The Companies’ 2006 funding level for the non-qualified supplemental pension plans has not been determined.

Note F – Other Postretirement Benefits

Reference is made to Note F to the financial statements in Item 8 of the Form 10-K.

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and nine months ended September 30, 2006 and 2005 were as follows:


	For the Three Months Ended September 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2006			2005			2006			2005
Service cost	$	4		$	4		$	3		$	3
Interest cost on accumulated other postretirement benefit obligation		21			20			19			18
Expected return on plan assets		(19	)		(19	)		(18	)		(18	)
Amortization of net actuarial loss		15			18			13			16
Amortization of prior service cost		(4	)		(4	)		(4	)		(4	)
Amortization of transition obligation		1			1			1			1
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	18		$	20		$	14		$	16
Cost capitalized		(7	)		(6	)		(5	)		(5	)
Cost deferred		(8	)		(5	)		(8	)		(4	)
Cost charged to operating expenses	$	3		$	9		$	1		$	7

	For the Nine Months Ended September 30,
	Con Edison						Con Edison of New York
(Millions of Dollars)	2006			2005			2006			2005
Service cost	$	13		$	11		$	10		$	8
Interest cost on accumulated other postretirement benefit obligation		64			62			57			55
Expected return on plan assets		(58	)		(59	)		(54	)		(55	)
Amortization of net actuarial loss		44			54			37			47
Amortization of prior service cost		(11	)		(11	)		(11	)		(11	)
Amortization of transition obligation		3			3			3			3
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	55		$	60		$	42		$	47
Cost capitalized		(18	)		(18	)		(14	)		(15	)
Cost deferred		(23	)		(16	)		(20	)		(12	)
Cost charged to operating expenses	$	14		$	26		$	8		$	20

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note G – Environmental Matters

Superfund Sites

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which includes costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and environmental damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites, are referred to herein as “Superfund Sites.”

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

The accrued liabilities and regulatory assets related to Superfund Sites at September 30, 2006 and December 31, 2005 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2006		2005		2006		2005
Accrued Liabilities
Manufactured gas plant sites	$	201	$	173	$	156	$	121
Other Superfund Sites		65		65		64		65
Total	$	266	$	238	$	220	$	186
Regulatory Assets	$	282	$	241	$	223	$	182

Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. As investigations progress on these and other sites, the Utilities expect that additional liability will

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

be accrued, the amount of which is not presently determinable but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.

Environmental remediation payments and insurance recoveries received related to the Superfund sites for the three and nine months ended September 30, 2006 and 2005 were as follows:


	For the Three Months Ended September 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2006		2005		2006		2005
Remediation payments	$	11	$	13	$	9	$	12
Insurance recoveries received		—		—		—		—


	For the Nine Months Ended September 30,
	Con Edison				Con Edison of New York
(Millions of Dollars)	2006		2005		2006		2005
Remediation payments	$	41	$	28	$	34	$	25
Insurance recoveries received*		3		2		3		2

*	Reduced amount deferred for recovery from customers.

In 2002, Con Edison of New York estimated that for its manufactured gas plant sites, most of which had not been investigated, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.1 billion. In 2004, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $87 million. These estimates were based on the assumption that there is contamination at each of the sites and additional assumptions regarding the extent of contamination and the type and extent of remediation that may be required. Actual experience may be materially different.

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2004, Con

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Edison of New York estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $25 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos.

Under its current rate agreements, Con Edison of New York is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 2006 and December 31, 2005 were as follows:


	Con Edison				Con Edison of New York
(Millions of Dollars)	2006		2005		2006		2005
Accrued liability - asbestos suits	$	25	$	25	$	25	$	25
Regulatory assets - asbestos suits	$	25	$	25	$	25	$	25
Accrued liability - workers’ compensation	$	120	$	118	$	116	$	113
Regulatory assets - workers’ compensation	$	45	$	42	$	45	$	42

Note H - Other Material Contingencies

Northeast Utilities Litigation

Con Edison and Northeast Utilities are pursuing claims against each other for damages as a result of the alleged breach of their agreement and plan of merger, dated as of October 13, 1999, as amended and restated as of January 11, 2000. The litigation, entitled Consolidated Edison, Inc. v. Northeast Utilities, was commenced in March 2001 and is pending in the United States District Court for the Southern District of New York. The parties are seeking to recover from each other fees and expenses each incurred in connection with the merger agreement and preparing for the merger. In addition, Con Edison is seeking to recover from Northeast Utilities compensation for synergies that were lost when the merger did not occur, together with the attorney’s fees it has incurred in connection with the litigation.

In May 2004, the District Court determined that Northeast Utilities could not sue Con Edison for the claimed difference between the consideration Con Edison would have paid pursuant to the merger agreement and the unaffected trading price of Northeast Utilities’ common stock prior to the announcement of the merger agreement (the so-called “lost premium”). In October 2005, the United States Court of Appeals for the Second Circuit held that Northeast Utilities’ shareholders could not sue Con Edison for the so-called lost premium.

Con Edison does not expect that the lawsuit will have a material adverse effect on its financial position, results of operations or liquidity.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transaction). The transactions respectively involved gas distribution and electric generating facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with Statement of Financial Accounting Standards (SFAS) No. 13, “Accounting for Leases,” Con Edison is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. At September 30, 2006 and December 31, 2005, the company’s investment in these leveraged leases ($230 million and $225 million, respectively) net of deferred tax liabilities ($203 million and $187 million, respectively), amounted to $27 million and $38 million, respectively.

On audit of Con Edison’s tax return for 1997, the Internal Revenue Service (IRS) disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States to obtain a refund of this tax payment and interest. In September 2006, at the audit level, the IRS also disallowed $151 million of net tax deductions taken with respect to both of the LILO transactions for the 1998 through 2001 tax years. Con Edison intends to appeal this decision, first within the IRS, and then, if necessary, to the federal courts.

Con Edison believes that its LILO’s have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses in connection with its LILO transactions. Con Edison’s estimated tax savings from the two LILO transactions through September 30, 2006, in the aggregate, was $150 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $40 million. See Note L for a discussion of a new accounting requirement regarding accounting for uncertainty in income taxes.

Timing of Deduction of Construction-Related Costs

In August 2005, the IRS issued Revenue Ruling 2005-53 with respect to when federal income tax deductions can be taken for certain construction-related costs. The Companies’ used the “simplified service cost method” (SSCM) to determine the extent to which these costs could be deducted in 2002,

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

2003, 2004 and 2005, and as a result reduced their current tax expense by $355 million, of which $324 million is attributable to Con Edison of New York.

For 2005, the Companies have agreed with the IRS to change their method of deducting these costs to a new method which the Companies are developing with the IRS. The Companies expect that they will be required to repay, with interest, a portion of their past SSCM tax benefits and to capitalize and depreciate over a period of years costs they previously deducted under SSCM. Interest on all past SSCM tax benefits would be approximately $64 million. In September 2006, Con Edison and Con Edison of New York accrued interest of $26 million and $23 million, respectively, representing their best estimates of the interest that may be required. Repayment of the SSCM tax benefits would not otherwise affect the Companies’ results of operations because deferred taxes have been previously provided for the related temporary differences between the SSCM deductions taken for federal income tax purposes and the corresponding amounts charged to expense for financial reporting purposes. See Note L for a discussion of a new accounting requirement regarding accounting for uncertainty in income taxes.

Lower Manhattan Restoration

Con Edison of New York estimates that its costs for emergency response to the September 11, 2001 attack on the World Trade Center, and for resulting temporary and subsequent permanent restoration of electric, gas and steam transmission and distribution facilities damaged in the attack will total $430 million, net of estimated insurance recoveries. Most of the costs have already been incurred. At September 30, 2006, the company had received reimbursement for $171 million of these costs ($77 million under insurance policies and $94 million from the federal government). The company expects to receive additional funds from insurance policies and federal reimbursement.

At September 30, 2006, the company had incurred capital costs of $213 million and, pursuant to a petition it filed with the PSC in 2001, deferred non-capital costs of $142 million as a regulatory asset (these amounts are net of reimbursements received). Non-capital costs include primarily the costs of moving facilities to avoid interfering with governmental projects (interference costs) and interest on capital and non-capital costs previously deferred. Con Edison of New York’s current rate plans provide for recovery from customers of $21.8 million annually of deferred non-capital costs associated with the World Trade Center. The company expects the PSC to permit recovery of all costs from customers, net of any federal reimbursement, insurance payments and tax savings.

Based upon New York City’s announced plans for improvement projects in lower Manhattan, the company anticipates that over the next five years it may incur up to $250 million of costs to move its facilities to avoid interfering with these projects. The company’s rate plans include provisions for the recovery of such costs. See Note B to the financial statements in Item 8 of the Form 10-K.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Mirant Litigation

In June 1999, O&R completed the sale of all of its generating assets and Con Edison of New York completed the sale of its two-thirds interest in the Bowline Point generating facility to affiliates (Mirant Affiliates) of Mirant Corporation (Mirant, formerly Southern Energy, Inc.). The total gross proceeds from the sale amounted to $476 million ($343 million attributable to O&R and $133 million attributable to Con Edison of New York). In 2003, Mirant and most of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In January 2006, Mirant and most of its subsidiaries, but not the Mirant Affiliates, emerged from bankruptcy.

In May 2006, Mirant, the Mirant Affiliates and another Mirant subsidiary (the Claimants) commenced a proceeding seeking, among other things, to void the sale of the generating assets and recover the amounts paid by the Mirant Affiliates in connection with the sale (which the Claimants allege exceeded the fair value of the assets), together with interest on such amounts. In addition, the Claimants seek damages, and a declaration that the Utilities defend and indemnify the Mirant Affiliates, in connection with certain environmental, operational and other matters relating to some of the assets, the costs of which could be substantial. The Claimants also object to the allowance of claims totaling approximately $1 million filed by the Utilities in the bankruptcy proceeding.

In October 2006, the Mirant Affiliate that owns the Lovett generating units notified the PSC and O&R of its intention to retire the units in 2007 and 2008. O&R is in the process of constructing upgrades to its transmission and distribution system to meet anticipated demand growth, and believes that these upgrades will allow the system to meet existing reliability criteria in the event that the Lovett units are shut down.

The Companies are unable to predict whether or not any Mirant related lawsuits or other actions will have a material adverse effect on their financial position, results of operations or liquidity.

Power Outage Proceedings

During a July 2006 heat wave, electric service to a number of Con Edison of New York’s customers, predominantly in the company’s Long Island City distribution network in Queens, New York was interrupted. Also, a number of the company’s customers in Westchester County, New York, experienced weather-related outages in 2006.

The PSC is comprehensively investigating the Queens outage, including the circumstances surrounding the outage, the company’s response, communication and restoration efforts, the need for changes to the company’s practices and procedures and the costs incurred by the company related to the outage. The PSC is also reviewing the Westchester outages. Certain members of the New York State Assembly have filed a petition with the PSC with respect to the Queens outage and the

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

September 2006 outage in Westchester resulting from Tropical Storm Ernesto. Their petition requests the PSC, among other things, to determine how the company’s actions affect its liability to provide compensation to customers whose service was interrupted and to prohibit the company from recovering any costs from customers as a result of its alleged imprudent policies and grossly negligent response. In addition, the PSC has issued an order to engage an independent third party consultant to conduct an audit of the company’s performance in response to outage emergencies and planning for restoration of service.

As of September 30, 2006, Con Edison of New York had paid $14 million to compensate customers for spoilage of food and other perishables resulting from the Queens outage, incurred estimated operating costs of $53 million and capital and retirement costs of $25 million, relating to the Queens and Tropical Storm Ernesto outages, and accrued anticipated penalties under its 2005 Electric Rate Agreement of $18 million relating to customer outages. The company’s electric tariff prescribes compensation to customers for spoilage resulting from certain distribution system outages, but does not require compensation for weather-related overhead outages.

The Companies are unable to predict whether the outages and any related proceedings will have any further material adverse effect on their results of operation or have a material adverse effect on their financial position or liquidity.

Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. In addition, a Con Edison Development subsidiary has issued a guarantee on behalf of an entity in which it has an equity interest. Maximum amounts guaranteed by Con Edison totaled $1.3 billion and $1.1 billion at September 30, 2006 and December 31, 2005, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

A summary, by type and term, of Con Edison’s total guarantees at September 30, 2006 is as follows:


Guarantee Type	0–3 years		4–10 years		> 10 years		Total
	(Millions of Dollars)
Commodity transactions	$	849	$	13	$	269	$	1,131
Affordable housing program		—		29		—		29
Intra-company guarantees		18		—		1		19
Other guarantees		32		49		—		81
TOTAL	$	899	$	91	$	270	$	1,260

Other guarantees include $47 million of guarantees issued by Con Edison covering RCN Corporation’s (RCN) lease payments for the right to use Con Edison of New York’s conduit system in accordance with a tariff approved by the PSC and rent payment obligations under various lease agreements for office buildings. See Note U to the financial statements in Item 8 of the Form 10-K.

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

Note I – Stock-Based Compensation

The Companies compensate employees and directors with, among other things, stock options, restricted stock units and contributions to a discount stock purchase plan. Shares of Con Edison common stock used to satisfy the Companies’ obligations with respect to such compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased on the open market. The shares used during the nine months ended September 30, 2006 have been new shares, except for shares distributed to a retired officer with respect to 30,000 vested restricted stock units which were purchased in the open market.

In January 2006, Con Edison adopted SFAS No. 123(R), “Share-Based Payment,” applying the modified prospective approach. Pursuant to SFAS No. 123(R), the Companies have recognized the cost of stock based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the three and nine months ended September 30, 2006:


	For the Three Months Ended September 30, 2006				For the Nine Months Ended September 30, 2006
(Millions of Dollars)	Con Edison		Con Edison of New York		Con Edison		Con Edison of New York
Stock options	$	2	$	1	$	8	$	7
Restricted stock units		—		—		1		—
Performance-based restricted stock		2		1		11		9

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

If the Companies had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment of Financial Accounting Standards Board (FASB) Statement No. 123,” for the purposes of recognizing expense for stock-based compensation arrangements, the following table illustrates the effect on net income and earnings per share for the three and nine months ended September 30, 2005:


	For the Three Months Ended September 30, 2005				For the Nine Months Ended September 30, 2005
(Millions of Dollars, except per share amounts/Shares in Millions)	Con Edison		Con Edison of New York		Con Edison		Con Edison of New York
Net income, as reported	$	285	$	282	$	581	$	573
Add: Stock-based compensation expense included in reported net income, net of related tax effects		1		1		4		3
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects		2		2		7		6
Pro forma net income	$	284	$	281	$	578	$	570
Earnings per common share:
Basic - as reported	$	1.17			$	2.39
Basic - pro forma	$	1.16			$	2.37
Diluted - as reported	$	1.16			$	2.38
Diluted - pro forma	$	1.16			$	2.37

Stock Options

For a description of the stock options, and the 1996 Stock Option Plan and the Long Term Incentive Plan (LTIP) under which the stock options have been awarded, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Pursuant to SFAS No. 123(R), the Companies generally recognize compensation expense (based on the fair value of stock option awards) over the continuous service period in which the options vest. Awards to employees currently eligible for retirement are expensed in the month awarded.

The outstanding options are “equity awards” because shares of Con Edison common stock are delivered upon exercise of the options. As equity awards, the fair value of the options is measured at the grant date. The weighted average fair value of options awarded in 2006 is $3.81. This value was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	2006
Risk-free interest rate	4.62	%
Expected term	4.6 years
Expected stock volatility	13.41	%
Expected dividend yield	5.06	%

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The weighted average risk-free rate is calculated using the five-year U.S. Treasury securities rate on the grant date of each stock option and then weighted for the number of shares awarded. The expected life of the options is based on historical employee exercise behavior and post-vesting cancellations. The expected stock volatility is calculated using the quarterly closing prices of Con Edison stock over a period of five years, which approximates the expected term of the options. The expected dividend yield is calculated using the annualized dividend divided by the stock price on the date of grant.

A summary of changes in the status of stock options during the three and nine months ended September 30, 2006 is as follows:


	Con Edison				Con Edison of New York
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at 12/31/05	7,867,151		$	41.913	6,697,401		$	42.000
Granted	804,000			46.880	699,000			46.880
Exercised	(67,500	)		37.560	(60,800	)		37.404
Forfeited	(20,900	)		42.691	(5,000	)		44.688
Outstanding at 3/31/06	8,582,751		$	42.412	7,330,601		$	42.503
Granted	859,900			43.500	711,700			43.500
Exercised	(64,725	)		35.935	(55,725	)		35.538
Forfeited	(19,000	)		44.353	(13,000	)		44.765
Outstanding at 6/30/06	9,358,926		$	42.553	7,973,576		$	42.637
Granted	—			—	—			—
Exercised	(235,200	)		39.003	(192,800	)		39.220
Forfeited	(17,000	)		46.108	(11,800	)		45.452
Outstanding at 9/30/06	9,106,726		$	42.641	7,768,976		$	42.722

The weighted average exercise price of options awarded in 2006 was $45.13 per share. The change in the fair value of all outstanding options from their grant dates to September 30, 2006 (aggregate intrinsic value) was $32 million for Con Edison. The aggregate intrinsic value of options exercised in the three months ended September 30, 2006 was $2 million and the cash received by Con Edison for payment of the exercise price was $9 million. The weighted average remaining contractual life of options outstanding is six years as of September 30, 2006.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The following table summarizes stock options outstanding at September 30, 2006 for each plan year for the Companies:


		Con Edison			Con Edison of New York
Plan Year	Remaining Contractual Life	Options Outstanding	Weighted Average Exercise Price	Options Exercisable	Options Outstanding	Weighted Average Exercise Price	Options Exercisable
2006	10	1,654,800	45.142	—	1,404,700	45.182	—
2005	9	1,273,050	42.735	—	1,027,750	42.718	—
2004	8	1,290,150	43.766	—	1,046,700	43.764	—
2003	7	1,431,675	39.735	1,431,675	1,191,075	39.794	1,191,075
2002	6	1,240,050	42.510	1,240,050	1,071,550	42.510	1,071,550
2001	5	718,400	37.750	718,400	620,900	37.750	620,900
2000	4	214,100	32.500	214,100	168,100	32.500	168,100
1999	3	891,350	47.938	891,350	849,550	47.938	849,550
1998	2	358,000	42.563	358,000	353,500	42.563	353,500
1997	1	35,151	31.500	35,151	35,151	31.500	35,151
Total		9,106,726		4,888,726	7,768,976		4,289,826

The total expense to be recognized in future periods for unvested stock options outstanding as of September 30, 2006 is $6 million for Con Edison, including $4 million for Con Edison of New York.

Restricted Stock Units

For a description of the restricted stock units, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. In certain cases, dividend equivalents are paid on the restricted stock units. In 2006, restricted stock unit awards under the LTIP were made as follows: (i) annual awards to officers under restricted stock unit agreements that provide for adjustment of the number of units (as described in Note N to the financial statements in Item 8 of the Form 10-K, performance-based restricted stock units or PBRS) and (ii) under the directors’ deferred compensation plan. No other awards of restricted stock units were made in 2006.

In accordance with SFAS No. 123(R), for outstanding restricted stock awards other than PBRS or awards under the directors’ deferred compensation plan, the Companies have accrued a liability based on the market value of a common share on the grant date and are recognizing compensation expense over the vesting period. The weighted average vesting period for outstanding awards is two years and is based on the employees’ continuous service to Con Edison; the latest period ends April 2009. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are “liability awards” because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. At September 30, 2006, there were 192,500 and 141,700 units outstanding for Con Edison and Con Edison of New York,

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

respectively. The weighted average fair value as of the grant date of the outstanding units is $35.844 per unit and $34.732 per unit for Con Edison and Con Edison of New York, respectively. In September 2006, 30,000 vested restricted stock units were distributed to a retired officer. The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of September 30, 2006 is $1 million.

For PBRS that are subject to adjustment based on Con Edison’s total shareholder return relative to the Standard and Poor’s Electric Utilities Index during a specified performance period (the TSR portion), the Companies use a Monte Carlo simulation model to estimate the fair value of the awards. The fair value is recomputed each reporting period as of the earlier of the reporting date and the vesting date. For PBRS that are subject to adjustment based on determinations made in connection with the Companies’ annual bonus plans (the EIP portion), the fair value of the awards is determined using the market price on the date of grant. PBRS awards are “liability awards” because each PBRS represent the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the PBRS are reflected in net income. The following table illustrates the assumptions used to calculate the fair value of the awards:


	2006
Risk-free interest rate		4.48 to 4.88	%
Expected term		3 years
Expected volatility		13.15	%
Expected quarterly dividends	$	0.575 to $0.59

The risk-free rate is based on the U.S. Treasury zero-coupon yield curve on the date of grant. The expected term of the PBRS is three years, which equals the vesting period. The Companies do not expect significant forfeitures to occur. The expected volatility is calculated using daily closing stock prices over a period of three years, which approximates the expected term of the awards. Expected annual escalation of dividends is based on historical trends.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

A summary of changes in the status of the PBRS’ TSR portion during the three months ended September 30, 2006 is as follows:


	Con Edison				Con Edison of New York
	Units		Weighted Average Fair Value*		Units		Weighted Average Fair Value*
Non-vested at 12/31/05	206,275		$	31.489	171,950		$	31.581
Granted	99,300			43.830	87,400			43.830
Vested and Exercised	(156,450	)		46.477	(144,475	)		46.455
Forfeited	—			—	—			—
Non-vested at 3/31/06	149,125		$	29.252	114,875		$	29.530
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/06	149,125		$	31.190	114,875		$	44.440
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 9/30/06	149,125		$	24.800	114,875		$	25.140

*	Fair value is determined using the Monte Carlo simulation described above.

A summary of changes in the status of the PBRS’ EIP portion during the three months ended September 30, 2006 is as follows:


	Con Edison				Con Edison of New York
	Units		Weighted Average Price		Units		Weighted Average Price
Non-vested at 12/31/05	206,275		$	43.297	171,950		$	43.300
Granted	99,300			46.880	87,400			46.880
Vested and Exercised	(156,450	)		46.477	(144,475	)		46.455
Forfeited	—			—	—			—
Non-vested at 3/31/06	149,125		$	43.500	114,875		$	43.500
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 6/30/06	149,125		$	44.440	114,875		$	44.440
Granted	—			—	—			—
Vested and Exercised	—			—	—			—
Forfeited	—			—	—			—
Non-vested at 9/30/06	149,125		$	46.200	114,875		$	46.200

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

The total expense to be recognized by the Companies in future periods for unvested PBRS outstanding as of September 30, 2006 is $4 million (including $3 million for Con Edison of New York).

For a description of the Non-Officer Director Deferred Compensation plan, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Restricted stock units issued under the directors’ deferred compensation plan are considered “equity awards,” because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison’s common stock on the business day immediately preceding the date of issue. In the three and nine months ended September 30, 2006, approximately 2,384 and 23,196 units were issued, respectively.

Stock Purchase Plan

For a description of the Stock Purchase Plan, reference is made to Note N to the financial statements in Item 8 of the Form 10-K. Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. In the three and nine months ended September 30, 2006, 127,529 and 439,646 shares were purchased under the Stock Purchase Plan at a weighted average price of $44.62 and $44.94 per share, respectively.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED

Note J - Financial Information By Business Segment

Reference is made to Note O to the financial statements in Item 8 of the Form 10-K.

The financial data for the business segments are as follows:


	For the Three Months Ended September 30,
	Operating Revenues					Inter-segment revenues						Depreciation and amortization				Operating Income
(Millions of Dollars)	2006			2005		2006			2005			2006		2005		2006			2005
Con Edison of New York
Electric	$	2,273		$	2,301	$	2		$	2		$	104	$	98	$	314		$	363
Gas		185			209		1			1			20		19		7			3
Steam		104			111		18			19			12		12		—			6
Consolidation adjustments		—			—		(21	)		(22	)		—		—		—			—
Total Con Edison of New York	$	2,562		$	2,621	$	—		$	—		$	136	$	129	$	321		$	372
O&R
Electric	$	205		$	201	$	—		$	—		$	7	$	7	$	25		$	25
Gas		26			23		—			—			2		2		(2	)		(2	)
Total O&R	$	231		$	224	$	—		$	—		$	9	$	9	$	23		$	23
Competitive energy businesses	$	661		$	490	$	11		$	2		$	10	$	9	$	29		$	2
Other*		(13	)		2		(11	)		(2	)		—		—		2			—
Total Con Edison	$	3,441		$	3,337	$	—		$	—		$	155	$	147	$	375		$	397

*	Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.