Estimates Note B – Regulatory Matters Rate and Restructuring Agreements Electric Con Edison Annual Report 2003 61 Con Edison of New York’s potential electric strandable costs are utility investments and commitments that may not be recoverable in a competitive electric supply market. The com- pany is recovering these costs in the rates it charges all of its electric customers. The 2000 Electric Rate Agreement contin- ues the stranded cost recovery provisions of the 1997 Restructuring Agreement, stating that Con Edison of New York “will be given a reasonable opportunity to recover stranded and  Pursuant to the 1997 Restructuring Agreement, as amended by a July 1998 PSC order, Con Edison of New York sold approximately 7,780 MW of the approximately 8,300 MW of generating capacity that it owned at the time the 1997 Restructuring Agreement was executed. See Note J. Pursuant to the 1997 Restructuring Agreement, Con Edison of New York reduced electric rates, on an annual basis, by $129 million in 1998, $80 million in April 1999, $103 million in April 2000 and $209 million in April 2001. The effect of the April 2001 decrease for the rate year ended March 31, 2002 was partially offset by recognition in income of $36 million relating  to rates for distributing electricity to customers of the New York Power Authority (NYPA) and $50 million (after-tax) of deferred generation divestiture gain. Rates were also reduced, on  an annual basis, effective September 2001 by $313 million to reflect the divestiture of the company’s nuclear generating  facility and the Roseton generating plant, which resulted in  a reduction in operating and other expenses. See Note J. Under the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through 2005 above a specified rate of return on electric common equity will be retained for shareholders and the balance will be applied for customer benefit as determined by the PSC. In 2002 and 2003, Con Edison of New York established an elec- tric shared earnings reserve of $49 million for the rate year ending March 2003. An electric shared earnings reserve has not been established for the rate year ending March 2004 based on results through the end of calendar year 2003, and there was no sharing of earnings for the rate year ended March 2002. The earnings threshold for rate years ending March 2003 through March 2005 of 11.75 percent can be increased up to 50 basis points. The threshold will increase by 25 basis points if certain demand reductions and supply increases exceed targeted projections and by an additional 25 basis points if certain customer service and reliability objectives are achieved. The company could be required to pay up to $40 million annually in penalties if certain threshold service and reli- ability objectives are not achieved. The company recorded penalties relating to reliability objectives of $8 million and $3 million in 2003 and 2002, respectively.  At December 31, 2003, approximately 92,000 Con Edison of New York customers representing approximately 28 percent of aggregate customer peak load were purchasing electricity from other suppliers under the electric retail access program (which is available to all of the company’s electric customers). The company delivers electricity to customers in this program through its regulated transmission and distribution systems. In general, its delivery rates for retail access customers are equal to the full-service rates applicable to other comparable cus- tomers, less an amount reflecting costs otherwise associated with supplying customers with energy and capacity. In September 1997, the PSC approved a restructuring agree- ment between Con Edison of New York, the PSC staff and cer- tain other parties (the 1997 Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access plan, a rate plan for the period ended March 31, 2002, a reasonable opportunity for recovery of “strandable costs” and the divestiture of electric generation capacity by the company. In general under the 2000 Electric Rate Agreement, Con Edison of New York’s base electric transmission and distribu- tion rates will not otherwise be changed during the five-year period ending March 2005 except (i) with respect to certain changes in costs above anticipated annual levels resulting from legal or regulatory requirements, inflation in excess of a 4 per- cent annual rate, property tax changes and environmental cost increases or (ii) if the PSC determines that circumstances have occurred that either threaten the company’s economic viability or ability to provide, safe and adequate service, or render the company’s rate of return unreasonable for the provision of safe and adequate service. In November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revised and extended the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000 Electric Rate Agreement, the company reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000. The preparation of financial statements in conformity with gen- erally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those esti- mates.