## General 

These combined notes accompany and form an integral part of the consolidated financial statements of each of Consolidated Edison, Inc., a holding company, and its subsidiaries (Con Edison), Consolidated Edison Company of New York, Inc. and its subsidiaries (Con Edison of New York) and Orange & Rockland Utilities, Inc. and its subsidiaries (O&R). Con Edison of New York and O&R, which are regulated utilities, are sub- sidiaries of Con Edison. Con Edison also has the following unregulated subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and gas to delivery customers of utilities, includ- ing Con Edison of New York and O&R, and also offers energy- related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply company; Consolidated Edison Development, Inc. (Con Edison Development), a com- pany that owns and operates generating plants and energy and other infrastructure projects; and Con Edison 

Communications, LLC (Con Edison Communications), a company that builds and operates fiber optic networks to provide telecommunications services. Con Edison of New York and O&R are referred to in these notes as the “Utilities.” Con Edison and the Utilities are collectively referred to in these combined notes as the “Companies.” Neither Con Edison of New York nor O&R makes any representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself. 

## Note A – Summary of Significant Accounting Policies Principles of Consolidation 

Con Edison’s consolidated financial statements include the accounts of Con Edison and its consolidated subsidiaries, including the Utilities. All intercompany balances and transactions have been eliminated. 

## Accounting Policies 

The accounting policies of Con Edison and its subsidiaries con- form to accounting principles generally accepted in the United States of America. For the Utilities, these accounting principles include the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation,” and, in accordance with SFAS No. 71, the accounting require- ments of the Federal Energy Regulatory Commission (FERC) and the state public utility regulatory commissions having jurisdiction. 

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

The Utilities’ principal regulatory assets and liabilities are detailed in Note B. The Utilities are receiving or being credited with a return on all of their regulatory assets for which a cash outflow has been made, and are paying or being charged with return on all of their regulatory liabilities for which a cash inflow has been received. The Utilities’ regulatory assets and liabilities will be recovered from customers, or applied for cus- tomer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission. 

Other significant accounting policies of the Companies are referenced in Note E (Pension Benefits), Note F (Other Postretirement Benefits), Note K (Leases), Note L (Goodwill and Intangible Assets) and Note P (Derivative Instruments and Hedging Activities) to the financial statements. 

## Plant and Depreciation Utility Plant 

Utility plant is stated at original cost. The capitalized cost of additions to utility plant includes indirect costs such as engi- neering, supervision, payroll taxes, pensions, other benefits and an allowance for funds used during construction (AFDC). The original cost of property is charged to accumulated deprecia- tion as property is retired. The cost of repairs and maintenance is charged to expense and the cost of betterments is capital- ized. At December 31, 2003, the Utilities reclassified the cost of removal less salvage value originally included in the accumu- lated depreciation reserve to a regulatory liability in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations.” The amounts reclassified for Con Edison, Con Edison of New York and O&R were $777 million, $721 million and $56 million in 2003 and $813 million, $773 million and $40 million in 2002, respectively. 

Rates used for AFDC include the cost of borrowed funds and a reasonable rate on the regulated utilities own funds when so used, determined in accordance with regulations of the FERC and the state public utility regulatory authority having jurisdic- tion. The rate is compounded semiannually, and the amounts 

