Gas Income Taxes O&R Electric Electric operating revenues increased $54 million in 2003  compared with 2002. The increase is due primarily to higher purchased power costs in 2003 and accounting for the 2003 O&R electric rate agreement and the NJBPU ruling on the RECO rate petitions. O&R’s electric sales and deliveries, excluding off-system sales, in 2003 compared with 2002 were: Millions of kWhs Twelve Months Ended December 31, December 31, Percent Description 2003 2002 Variation Variation Residential/ Religious 1,769 1,815 (46) (2.5)% Commercial/ Industrial 2,277 2,393 (116) (4.8) Other 111 111 - - Total Full Service  Customers 4,157 4,319 (162) (3.8) Retail access  customers 1,455 1,235 220 ) 17.8 Total Service Area 5,612 5,554 58) 1.0% Electric delivery volumes in O&R’s service area increased 1.0 percent in 2003 compared with 2002 due to the growth in the number of customers, higher average customer usage, and the positive effect of the cooler-than-normal weather in the first quarter of 2003, partially offset by negative impact of weather on the last nine months of 2003. After adjusting for weather variations and the August 2003 regional power outage, electric delivery volumes in O&R’s service area increased 2.5 percent in 2003. O&R’s purchased power cost increased $31 million in 2003 as compared with 2002 due to an increase in the average unit cost and the regulatory actions referenced above. This increase was offset by lower energy usage by the company’s full-service customers and higher volumes of electricity purchased from other suppliers by participants in O&R’s retail access program. O&R’s electric operating income decreased $6 million in 2003 as compared with 2002 due primarily to the referenced regula- tory actions.  40 Con Edison Annual Report 2003 O&R’s gas operating revenues increased $38 million in 2003 compared with 2002. The increase is due primarily to higher cost of gas purchased for resale in 2003, higher firm sales and transportation volumes and the impact of the 2003 gas rate agr eement. Operating income taxes increased $18 million in 2003 com- pared with 2002, primarily as a result of less flow-through (non- deferred) depreciation for tax purposes. In addition, lower oper- ating income taxes in 2002 reflected a tax benefit from an Internal Revenue Service audit for tax years 1995 through 1997 and a write-off of excess deferred tax reserves. O&R’s gas sales and deliveries, excluding off-system sales, in 2003 compared with 2002 were: Thousands of DTHs Twelve Months Ended December 31, December 31, Percent Description 2003 2002 Variation Variation Firm Sales Residential 10,810 10,203 607 5.9% General 3,314 3,295 19 0.6 Firm Transportation 8,498 6,368 2,130 33.4 To tal Firm Sales  and Transportation 22,622 19,866 2,756 13.9 Of f Peak/ Interruptible Sales 6,833 7,366 (533)  (7.2) Non-Firm Transportation of Gas Generation Plants 2,833 13,983 (11,150) (79.7) Other 1,134 1,057 77 7.3 T otal Sales  and Transportation 33,422 42,272 (8,850) (20.9)% O&R’s sales and transportation volumes for firm customers increased 13.9 percent in 2003 compared with 2002. The increase reflects the impact of the cold weather in the 2003 winter period compared with the mild weather in the 2002 win- ter period. Revenues from gas sales in New York are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income. After adjusting for weather variations in each period and the August 2003 regional power outage, total firm sales and trans- portation volumes were 3.0 percent higher in 2003 compared with 2002. Non-firm transportation of customer-owned gas to electric gen- erating plants decreased 79.7 percent in 2003 as compared with 2002 due to higher gas prices. In 2003, because of the relative prices of gas and fuel oil, power plants in the compa- ny’s gas service area utilized oil rather than gas for a significant portion of their generation. In addition, one area power plant completed a construction project to directly connect to a gas transmission provider. The decline in gas usage had minimal impact on earnings due to the application of a fixed demand charge for local transportation. O&R’s cost of gas purchased for resale increased $31 million in 2003 as compared with 2002 due to increased sales to firm 