rates are adjusted to conform to contracted amounts when new contracts take effect and differences between actual  costs and revenues collected, chiefly attributable to differences between estimated and actual customer consumption, are  reconciled at a later date. See “Rate and Restructuring Agreements-Electric” in Note B for 2003 NJBPU ruling  regarding previously deferred purchased power costs. In Pennsylvania, O&R’s subsidiary recovers fuel costs based on  a rate allowed by the Pennsylvania Public Utility Commission (PPUC). Temporary cash investments are short-term, highly liquid investments that generally have maturities of three months or less. They are stated at cost, which approximates market. The Companies consider temporary cash investments to be cash equivalents. Investments consist primarily of the investments of Con Edison’s unregulated subsidiaries, which, depending on the subsidiaries’ ownership, are recorded at cost, accounted for under the equity method or accounted for as leveraged leases in accordance with SFAS No. 13, “Accounting for Leases.” See Note K for a discussion of investments in Lease In/Lease Out transactions and Note H for a discussion of Con Edison Development’s impairment charge related to its Genor generat- ing asset. Con Edison of New York’s investments are recorded under the equity method. In accordance with SFAS No. 109, “Accounting for Income Taxes,” the Companies have recorded an accumulated deferred federal income tax liability for temporary differences between the book and tax bases of assets and liabilities at cur- rent tax rates. In accordance with rate agreements, the Utilities have recovered amounts from customers for a portion of the tax liability they will pay in the future as a result of the reversal or “turn-around” of these temporary differences. As to the remaining tax liability, in accordance with SFAS No. 71, the Utilities have established regulatory assets for the net revenue requirements to be recovered from customers for the related future tax expense (see Note M). In 1993, the PSC issued a Policy Statement approving accounting procedures consistent with SFAS No. 109 and providing assurances that these future increases in taxes will be recoverable in rates. Accumulated deferred investment tax credits are amortized rat- ably over the lives of the related properties and applied as a reduction to future federal income tax expense. Con Edison and its subsidiaries file a consolidated federal income tax return. The consolidated income tax liability is  allocated to each member of the consolidated group using the separate return method. Each member pays tax or receives a benefit based on its own taxable income or loss in accordance with tax sharing agreements between the members of the  consolidated group. The New York State tax laws applicable to utility companies were changed effective January 1, 2000. Certain revenue- based taxes were repealed or reduced and replaced by a net income-based tax. In June 2001, the PSC issued its Final Order relating to the tax law changes. It authorized each utility to use deferral accounting to record the difference between taxes being collected and the actual tax expense under the new tax law until that expense is incorporated in base rates.  Con Edison and its subsidiaries file a combined New York State Corporation Business Franchise Tax Return. Similar to a federal consolidated income tax return, the income of all entities in the combined group is subject to New York State taxation, after adjustments for differences between federal and New York law and apportionment of income among the states in which the company does business. Each member of the group pays or receives a benefit based on its own New York State taxable income or loss. The PSC requires New York regulated utility companies to r ecord gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both rev- enue and expense). The recovery of these taxes is part of the PSC approved revenue requirement within each of the respec- tive rate agreements. Research and development costs are charged to operating expenses as incurred. Research and development costs were as follows: Certain prior year amounts have been reclassified to conform with the current year presentation. Reclassification Research and Development Costs  Federal Income Tax Taxes Other than Income Taxes Investments Temporary Cash Investments State Income Tax For the Years Ended December 31, (Millions of Dollars) 2003 2002 2001 Con Edison $11 $11 $14 Con Edison of New York $10 $11 $14 O&R $ 1 $ - $ - 58 Con Edison Annual Report 2003