Con Edison Development and O&R’s swaps are designated as cash flow hedges under SFAS No. 133. Any gain or loss on the hedges is recorded in OCI and reclassified to interest expense and included in earnings during the periods in which the hedged interest payments occur. The contractual compo- nents of the interest rate swaps accounted for as cash flow hedges are as follows: tric, gas and related energy trading products and provides risk management services to other unregulated Con Edison sub- sidiaries in order to optimize the value of their electric generat- ing facilities and retail supply contracts. It also engages in a limited number of other wholesale commodity transactions. Con Edison Energy utilizes forward contracts for the purchase and sale of electricity and capacity, over-the-counter swap contracts, exchange-traded natural gas and crude oil futures and options, transmission congestion contracts and other physical and financial contracts. As of December 31, 2003, these contracts had terms of three years or less and their fair value was $4 million as of December 31, 2003 and $5 million as of December 31, 2002. Con Edison’s unregulated sub- sidiaries recognized in earnings pre-tax net losses relating to energy trading contracts of $3 million and $1 million, including the amortization of premiums paid and received, and excluding the cumulative effect of a change in accounting principle, for the years ended December 31, 2003 and 2002, respectively.  Effective October 1, 2002, all derivative energy-trading con- tracts are reported at fair value, with corresponding changes in value recognized immediately in earnings in accordance with SFAS No. 133 and Emerging Issues Task Force (EITF) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” Prior to October 2002, energy-trading contracts were accounted for under EITF Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities,” which was rescinded in October of 2002. As a result, previous- ly recognized mark-to-market gains and losses on non-deriva- tive contracts were reversed. Con Edison reported a $2 million after-tax loss for the effect of the rescission as a cumulative effect of a change in accounting principle.  The following table presents selected information related to these cash flow hedges included in the accumulated OCI at December 31, 2003: Con Edison’s subsidiaries use interest rate swaps to manage interest rate exposure associated with debt. The fair values  of these interest rate swaps at December 31, 2003 and 2002 were 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 interest rates. The effect of reclassification from accumulated OCI to earnings will generally be offset by the recognition of the hedged transaction in earnings. The reclas- sification to earnings has no impact on O&R’s results of opera- tions because these costs are currently recovered in O&R’s rates. Con Edison of New York’s swap (related to $225 million of  tax-exempt debt) is designated as a fair value hedge, which qualifies for “short-cut” hedge accounting under SFAS No. 133. Under this method, changes in fair value of the swap  are recorded directly against the carrying value of the hedged bonds and have no impact on earnings.  In March 2001, Con Edison commenced an action in the United States District Court for the Southern District of New  Con Edison Annual Report 2003 85 Note Q – Northeast Utilities Litigation  Interest Rate Hedging Unrealized gains and losses on these cash flow hedges,  net of tax, included in accumulated OCI for the years ended December 31, 2003 and 2002 were as follows: Debt Maturity Notional Fixed Rate Variable Rate (Millions of Dollars) Date Amount Paid Received O&R Pollution Control  Refunding Revenue Bond, Current  1994 Series A 2014 $55 6.09% bond rate Con Edison Development  Amortizing variable  rate loans - Lakewood 2008 $67 6.68% LIBOR Twelve Months Ended December 31, Con Edison O&R (Millions of Dollars) 2003 2002 2003 2002 Unrealized gains/(losses) on  derivatives qualified as hedges,  net of taxes $2 $(9) $3 $(4) Less: Reclassification adjustment  for gains/(losses) included in  net income, net of taxes (1) (4) 1 (1) Unrealized gains/(losses)  on derivatives qualified  as hedges for the period $3 $(5) $2 $(3) Accumulated Other Portion Expected to be Comprehensive Income/(Loss) Reclassified to Earnings Net of Tax during the Next 12 Months (Millions of Dollars) Con Edison O&R Con Edison O&R Inter est Rate Swaps $(14) $(10) $(3) $(1) Con Edison  Con Edison of New York O&R (Millions of Dollars) 2003 2002 2003 2002 2003 2002 Fair value of  interest rate swaps $(23) $(23) $1 $6 $(17) $(19)