Note P – Derivative Instruments and Hedging Activities  Energy Price Hedging Cash Flow Hedges Other Derivatives Energy Trading Activities  84 Con Edison Annual Report 2003 Con Edison Energy engages in energy-trading activities. Con Edison Energy makes wholesale purchases and sales of elec- Con Edison of New York enters into certain non-trading deriva- tive instruments, some of which are on behalf of O&R, that are not designated as hedges for accounting purposes. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. The Utilities, with limited exceptions, recover all gains and losses on these instruments. See “Recoverable Energy Costs” in Note A. Con Edison Solutions and Con Edison Energy also enter into certain other contracts that are deriva- tives, but do not qualify for hedge accounting under SFAS No. 133. Changes in the fair market value of these derivative con- tracts are recorded in earnings in the reporting period in which they occur. In the years ended December 31, 2003 and 2002, the Companies recognized in earnings unrealized pre-tax net gains and losses relating to these hedges as follows: For the Companies, unrealized gains and losses on cash  flow hedges for energy transactions, net of tax, included in accumulated OCI for the years ended December 31, 2003  and 2002 were as follows: Con Edison’s subsidiaries designate a portion of derivative instruments held for purposes other than trading as cash flow hedges under SFAS No. 133. Under cash flow hedge account- ing, to the extent a hedge is determined to be “effective,” the unrealized gain or loss on the hedge is recorded in other com- prehensive income (OCI) and reclassified to earnings at the time the underlying transaction is completed. A gain or loss relating to any portion of the hedge determined to be “ineffec- tive” is recognized in earnings in the period in which such determination is made.  For the years ended December 31, 2003 and 2002, the Companies recognized in net earnings unrealized pre-tax net gains and losses relating to hedge ineffectiveness of these cash flow hedges as follows: The actual amounts that will be reclassified to earnings may vary from the expected amounts presented above as a result of changes in market prices. The effect of reclassification from accumulated OCI to earnings will generally be offset by the recognition of the hedged transaction in earnings.  Con Edison's subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity and natural gas by using derivative instruments including futures, forwards, basis swaps, transmission congestion contracts and financial transmission rights contracts. The fair values of these hedges at December 31, 2003 and 2002 were as follows: Effective January 2001, the Companies adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133). Under SFAS No. 133, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the standard. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under SFAS No. 133. The following table presents selected information related to these cash flow hedges included in accumulated OCI at December 31, 2003: Accumulated Other Portion Expected to be  Comprehensive Income/(Loss) Reclassified to Earnings Maximum Term Net of Tax in the Next 12 Months Con Con Con (Millions of Edison Edison Edison Dollars/T erm Con of Con of Con of in Months) Edison New York O&R Edison New York O&R Edison New York O&R Energy price hedges 33 8 12 $5 $- $- $4 $- $- Con Edison Con Edison of New York O&R (Millions of Dollars) 2003 2002 2003 2002 2003 2002 Fair value of net assets $27 $39 $15 $16 $5 $1 Con Edison Twelve Months Ended December 31, Con Edison of New York O&R (Millions of Dollars) 2003 2002 2003 2002 2003 2002 Unrealized gains/(losses)  on ineffective portion  of derivatives qualified  as hedges $(1) $2 $- $- $- $- Con Edison Twelve Months Ended December 31, Con Edison of New York O&R (Millions of Dollars) 2003 2002 2003 2002 2003 2002 Unrealized gains/(losses)  on derivatives qualified as  cash flow hedges,  net of taxes $11 $28 $(1) $4 $- $- Less: Reclassification  adjustment of gains/(losses) included  in net income, net of taxes 20 2 (1) 1 - - Unrealized gains/(losses)  on derivatives  qualified as cash flow  hedges for the period $ (9) $26 $ - $3 $- $- Con Edison Twelve Months Ended December 31, Con Edison of New York O&R (Millions of Dollars) 2003 2002 2003 2002 2003 2002 Unrealized gains/(losses) $- $4 $- $- $- $-