$129 million (14.6 percent), effective October 2004.  Con Edison of New York is currently operating under a steam rate agreement that was approved by the PSC in December 2000. The agreement provided for a $16.6 million steam rate increase, which took effect October 2000 and, with limited exceptions, provided for no further changes in steam rates prior to October 2004. The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk.  The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its subsidiaries man- age interest rate risk through the issuance of mostly fixed rate- debt with varying maturities and through opportunistic refinanc- ing of debt. Con Edison estimates that, as of December 31, 2003, each 10 percent variation in interest rates applicable to the Companies’ variable rate debt of $816 million would result in a change in annual interest expense of $1 million. For each 10 percent change in Con Edison of New York’s and O&R’s variable interest rates applicable to their variable rate debt  of $714 million and $59 million, respectively, annual interest expense for Con Edison of New York would change by $1  million and there would be no material impact for O&R. In addition, Con Edison and its subsidiaries, from time to time, enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See “Interest Rate Hedging” in Note P to the financial statements. Con Edison’s commodity price risk relates primarily to the pur- chase and sale of electricity, gas and related derivative instru- ments. The Utilities and Con Edison’s unregulated subsidiaries have risk management strategies to mitigate their related expo- sures. See Note P to the financial statements. Con Edison estimates that, as of December 31, 2003, each 10 percent change in market prices would result in a change in fair value of $12 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $8 million is for Con Edison of New York and $4 million for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy pur- chased for their customers, including gains and losses on cer- tain derivative instruments used to hedge energy purchased and related costs. See “Recoverable Energy Costs” in Note A to the financial statements. Con Edison’s unregulated subsidiaries use a value-at-risk (VaR) model to assess the market risk of their electricity and gas commodity fixed price purchase and sales commitments, physical forward contracts and commodity derivative instru- ments. VaR represents the potential change in fair value of instruments or the portfolio due to changes in market factors, for a specified time period and confidence level. The unregulat- ed subsidiaries estimate VaR across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for transac- tions associated with hedges on generating assets and com- modity contracts, assuming a one-day holding period, for the years ended December 31, 2003, and 2002, respectively,  was as follows: The Companies are exposed to credit risk related to over-the- counter transactions entered into primarily for the various ener- gy supply and hedging activities by the Utilities and the unregu- lated energy subsidiaries. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, master netting agreements and collateral or prepayment arrangements. The Companies measure credit risk exposure as the replacement cost for open energy commodity and deriv- ative positions plus amounts owed from counterparties for set- tled transactions. The replacement cost of open positions rep- resents unrealized gains, net of any unrealized losses where the company has a legally enforceable right of setoff.  Con Edison’s unregulated energy subsidiaries had $71 million of credit exposure, net of collateral and reserves, at December 31, 2003, of which $63 million was with investment grade counterparties and $8 million was with the New York Mercantile Exchange or independent system operators.  Con Edison Annual Report 2003 35 Cr edit Risk  Financial and Commodity Market Risks Interest Rate Risk Commodity Price Risk  95% Confidence Level, One-Day Holding Period 2003 2002 (Millions of Dollars) Av erage for the period $1 $1 High $3 $3 Low $ - $1