TO OUR SHAREHOLDERS
A Year of Challenge
As New York State's largest energy distributor, your company faced many new challenges in 2001 and met them with strength and success. Con Edison of New York and Orange and Rockland Utilities, our two regulated utility companies, served 9.5 million New Yorkers, about half the state's population, and delivered 43% of all electric energy consumed in New York State. Over the past year, we continued substantial investment in our electric, gas, and steam energy infrastructure. Recent events have shown just how vital that infrastructure is to the economy of our entire nation.
In tumultuous times for the energy industry and our country, Con Edison's focus on its core energy transmission and delivery business has protected our shareholders' interests. The price of our common stock rose 4.8% in 2001. Total return to shareholders, including reinvestment of dividends, was 11%. This performance is particularly notable by comparison with declines in 2001 in major market indices. Despite the difficult economic environment, we earned a solid $3.22 a share. We maintained the strength of our balance sheet, along with our very good credit ratings.
We recognize the importance of the dividend to our shareholders and increased the dividend in 2001 for the 27th consecutive year, a record shared by few in our industry. In January 2002, we increased the dividend again, to an annualized $2.22 a share, reflecting our confidence in the future of Con Edison.
On September 11, our company, our city, and our nation were confronted with an unprecedented challenge. As a vital participant in the life of New York City, Con Edison was on the front lines, active in the emergency response to this crisis. In the days that followed, our hard-working men and women accomplished a truly extraordinary feat by restoring the critical energy services needed to help the city begin its recovery.
Within eight days of the attack, virtually all customers in lower Manhattan had electric, gas, and steam service available. In view of the damage inflicted on the energy delivery systems, this achievement is a testament to the initiative, skill, and dedication of Con Edison emergency teams and the many
others throughout the company who provided support. The Edison Electric Institute, an association of United States investor-owned electric utilities with affiliates and associates worldwide, recognized Con Edison's accomplishment with its highest honor, the Edison Award.
Field crews continue working on permanent repairs. Two substations that were destroyed must be rebuilt. The first is scheduled for completion by the summer of 2002, the
second in 2003. Additional rebuilding includes installing more than 130 miles of cable and associated support structures in the dense, narrow streets of downtown Manhattan. We've made excellent progress on this work. The energy delivery systems will be ready for the summer of 2002.
Meeting New York's Energy Needs
Though the events of September 11 overshadowed the year's developments, other major challenges were successfully met during 2001. In August, the Northeast was subjected to an intense weeklong heat storm. On August 9, Con Edison of New York set a new record for electric demand, when peak load reached 12,207 megawatts. That same day, gas operations set a daily delivery record of 1,077,858 dekatherms. Orange and Rockland Utilities also experienced a historic electric peak of 1,340 megawatts. Our systems and the people who operate them performed very well in response to record demand. Customers received reliable service that kept their homes and businesses supplied with power and helped them cope with the heat.
All businesses, from multinational securities firms to the corner grocery, are expanding their use of digital processing to track their sales, manage inventory, execute transactions, and handle day-to-day operations. Many of the advances being made today in research and engineering are making computerized information management systems more useful in daily living and business pursuits. A reliable supply of energy is essential for both homes and commercial facilities, and meeting this need represents a source of continuing growth for Con Edison.
Although the nation and the region are experiencing an economic slowdown, the New York metropolitan area retains its core strength. It remains the center of major industries, such as finance, media, advertising, insurance, real estate, pharmaceuticals, and medical research. The most recent census confirms that the population of New York City has increased to more than eight million people, an expansion that drives development of new housing, stimulates more business, and enhances commercial activity and new job creation, all of which contribute to a sound economic base. For more than 175 years, Con Edison has been a vital part of the metropolitan area. As the need for energy has increased in New York City and the rest of our service area, your company has kept pace and is strongly positioned for growth as the economy recovers.
Investing in Our Future
An important factor in the ability of our energy delivery systems to meet the challenge of sustained growth is our ongoing program of capital investment in electric, gas, and steam infrastructures. More than $700 million was spent on improvements in 2001. Over the next five years, Con Edison of New York expects to invest $4.3 billion on electric, gas, and steam delivery systems. With new technologies being applied to monitoring and control systems, our state-of-the-art equipment provides an in-depth real-time picture of network performance that helps improve operational reliability and efficiency.
In 2001, we completed the sale of the Indian Point nuclear plant facilities for more than $500 million. To help ensure an adequate energy supply for our customers, we negotiated an arrangement to acquire the electric output of this facility through 2004.
As part of our effort to secure adequate electricity supplies for summer peak demand until new generation is built, we are repowering our East River Station using new state-of-the-art turbines. These new units will allow Con Edison to generate steam more efficiently and will provide needed electric energy year-round.
Ongoing capital improvements – and the steadfast dedication of our workforce – help us keep Con Edison of New York's system reliability the nation's best. This investment is one part of our corporate strategy to grow our core business. As the need for energy climbs, Con Edison will continue to make investments in infrastructure and technology to meet customer needs.
Providing Industry Leadership
In 2001, extraordinary interest was focused on the energy industry nationwide. The year began with events in California that burdened the state's economy and strained available energy supplies in the West. Sharp increases in the cost of electric supply led to the bankruptcy of one of the West Coast's largest public utilities and left another teetering on the brink. By the end of the year, the country's largest energy trading firm had also collapsed. These events have once again called public attention to the role of energy policy and business practices in an increasingly competitive global economy.
Utility customers in New York State can purchase electric energy and natural gas from independent energy services companies. This promotes retail and wholesale competition among energy suppliers, which will ultimately benefit businesses and consumers. Con Edison has taken a leadership position in working with the Federal Energy Regulatory Commission, the New York State Public Service Commission, the New York Independent System Operator, and other policymakers and market participants to ensure that energy supplies are adequate to meet our peak summer loads and that the transition to fully competitive energy markets goes forward in an effective and measured way. We also work closely with our customers to provide the information that can help them to make informed energy choices.
Building a Presence in Competitive Markets
Con Edison's four unregulated companies are on track to develop and grow in a spectrum of markets. Con Edison Communica-tions continues to build out its fiber-optic network in New York City and has completed service facilities for more than 60 buildings. The company has established long-term agreements with major facility owners and property management firms to provide backup broadband infrastructure, as businesses seek to bolster their communications capability in light of September 11.
Con Edison Solutions provides a wide range of energy procurement and management services to companies and individuals, helping its customers successfully navigate the new competitive energy landscape.
Con Edison Development acquires, develops, owns, and operates electric generation plants in several mid-Atlantic and New England states, where demand for electric energy continues to increase.
Con Edison Energy has access to the output from these and other generating plants. It offers energy, capacity, and risk-management services to wholesale customers in the Northeast.
Our competitive business units leverage the strengths of Con Edison to build profitable growth in their respective markets. As the communications and energy industries evolve, these companies are well positioned to satisfy customer demand for innovative services and business solutions.
Meeting Every Challenge
Con Edison excels at our core “wires and pipes” business. With our solid credit ratings, strong capital structure, and steady growth in dividends, we are pursuing a corporate strategy that combines our financial strength with our experience in energy markets. We look forward to pursuing opportunities in the regulated sector through enhancement of our delivery systems to meet growing energy demand and through continuing improvements in operating efficiency. We continue to apply our expertise in energy supply, energy services, and infrastructure systems to maximize the potential of our non-utility companies in competitive markets.
| “As the need for energy has increased in New York City and the rest of our service area, your company has kept pace and is strongly positioned for growth as the economy recovers.” |
We are steadfast in our commitment to environmental excellence. Our environmental programs are recognized nationwide. Within the company, environment, health, and safety policies and principles are regarded with the same importance as operational and business matters. Every day, we work to safeguard the environment within our service area and to help protect the well-being of our customers and our employees.
In reflecting on the challenges of the past year, we have intensified our outreach in support of the people and communities we serve. Many of our men and women serve as volunteers in environmental programs, mentoring programs, and charitable organizations. Con Edison's broad-based efforts within our service areas extend well beyond providing reliable energy.
Con Edison is also reaching out to the business community with strategies and programs that help spur local economic activity and drive mutually profitable growth. We offer incentives to stimulate start-up ventures in new media, recycling, food processing, and biotechnology. We work with government to help commercial customers take full advantage of programs designed to stimulate the local economy and help small businesses prosper. Few companies are better equipped for the task of helping our communities grow. Our roots run deep. Our 14,000 employees live and work in and near the towns and neighborhoods we serve, enliven their communities, and give of themselves both as professionals and as caring individuals.
Con Edison will be there, as we have been for more than a century, meeting every challenge and delivering the energy that will help the region to thrive. And as we look to the future, a strong and resourceful Con Edison will keep working for shareholders, delivering value year after year, through changing markets and changing times.
Eugene R. McGrath
Chairman, President and Chief Executive Officer
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Con Edison Update: Rebuilding Lower Manhattan's Energy Infrastructure
Since September 11, Con Edison has been active at the World Trade Center site and its surrounding neighborhood. Beginning with initial emergency response, to service restoration, through to permanent reconstruction, we've been working to help downtown make a comeback and to support the ongoing recovery of companies and residents in the affected area.
A number of firms displaced by the attack are returning to lower Manhattan as space becomes available, and other businesses will locate downtown over the coming months.
Con Edison's crews and contractors continue making excellent progress rebuilding the energy delivery infrastructure in the area of the city that neighbors the World Trade Center site.
The hard work, dedication, and innovative spirit of all Con Edison employees have met the challenges posed by the reconstruction. By the time this project is completed, more than 43,000 feet of trenches will have been excavated. More than 695,000 feet of new electric cable will have been laid, requiring 2,300 splices, and it will have been installed inside approximately 50 miles of new underground conduit. Parts of the gas and steam system are being rebuilt as well. Some gas mains are being replaced, along with associated control equipment. More than 1,300 feet of 16-inch steam main have been installed. Fifty-four new manholes have been built throughout the affected area.
Although portions of the energy infrastructure were undamaged and will continue in service, the electric, gas, and steam networks must be reconfigured. This means that control mechanisms, valves and regulators for gas and steam distribution are being repositioned to accommodate the new system designs.
For the electric system, a major undertaking is the reconstruction of two substations that were destroyed in the collapse of World Trade Center Building 7. The first substation will be operational for the summer of 2002; the second is scheduled for completion in 2003. Work on the first substation is close to completion thanks to extraordinary cooperation from equipment fabricators and suppliers, who were able to produce the needed equipment in less than five months. Under ordinary circumstances, delivery of substation equipment and the construction work can take up to two years.
This new substation will be located on Manhattan's east side, and equipped with the latest transformers, switchgear, and state-of-the-art monitoring and control equipment. The second substation will be located at the site of World Trade Center 7.
The reconstruction effort requires a substantial amount of engineering and design, which we are accomplishing in record time. In addition, we are pioneering new work techniques to speed the program of permanent repairs. We have developed new equipment to deal with the conditions on site. For example, underground feeder cables have traditionally been housed in concrete conduit built of four-foot sections. Now, 20-foot sections of polyethylene tubing are being used for the job. This new material performs as well as the old, but the installation is considerably accelerated and simplified. We are also finding ways of making our crews more efficient. For example, the use of plastic pipe facilitates longer cable pulls so that field personnel can work much more efficiently and, when coupled with certain modifications made to triple the capacity of Con Edison's cable trucks, allows our crews on site to be more productive.
Another important productivity enhancement was to develop computer-modeling techniques that help speed testing of installed systems, in order to clear them for service more quickly than with conventional methods.
The work we're doing will ensure that our customers continue to benefit from outstanding reliability of service, and will also accommodate the growth in demand for energy that a recovering economy and warmer weather will bring.
For a description of our preparations for meeting New York City's summer 2002 electric loads, click on the Summer Power tab on the Investor Information page of our Web site, www.conEdison.com.
As with the substantial reconstruction that has already been completed, the remaining work in lower Manhattan will be done while the area continues its progress toward normalization. Our crews will be a visible presence, doing their jobs with diligence, expertise, and quiet determination to rebuild the systems that power one of the world's greatest cities.
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Stock Information
Market Information
Financial Data
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Consolidated Edison, Inc. 4 Irving Place New York, NY 10003 (212) 460-4600 www.conEdison.com |
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Eugene R. McGrath Chairman, President and Chief Executive Officer |
Joan S. Freilich Executive Vice President and Chief Financial Officer |
Edward J. Rasmussen Vice President, Controller and Chief Accounting Officer |
Robert P. Stelben Vice President and Treasurer |
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Hyman Schoenblum Vice President, Corporate Planning |
Jan C. Childress Director, Investor Relations (212) 460-6611 childressj@coned.com |
John E. Perkins Director, Financial Administration (212) 460-3807 |
Krista L. Price Manager, Investor Relations (212) 460-6131 Toll-free: (888) 811-4992 pricekr@coned.com |
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| REGULATED UTILITIES | |
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Consolidated Edison Company of New York, Inc. 4 Irving Place New York, NY 10003 (212) 460-4600 www.conEd.com |
Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 (845) 352-6000 www.oru.com |
| UNREGULATED BUSINESSES | |||
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Consolidated Edison Solutions, Inc. 701 Westchester Avenue, Suite 300 East White Plains, NY 10604 (914) 286-7000 www.conEdsolutions.com |
Consolidated Edison Development, Inc. 111 Broadway, 16th Floor New York, NY 10006 (212) 393-9242 www.coneddev.com |
Consolidated Edison Energy, Inc. 701 Westchester Avenue, Suite 201 West White Plains, NY 10604 (914) 993-2189 www.conEdenergy.com |
Con Edison Communications, LLC 132 West 31st Street New York, NY 10001 (212) 324-5000 www.electricfiber.com |