SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                               -------------------


                                    Form 8-K

                                 Current Report

                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934


                         Date of Report: March 13, 1997


                  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
               (Exact name of registrant as specified in charter)



                           New York 1-1217 13-5009340
                     (State of (Commission (I.R.S. Employer
                 incorporation) File Number) Identification No.)



                       4 Irving Place, New York, NY 10003
                    (Address of principal executive offices)


                  Registrant's telephone number: (212) 460-4600











                                      - 2 -


INFORMATION TO BE INCLUDED IN THE REPORT


ITEM 5.  OTHER EVENTS


PSC SETTLEMENT AGREEMENT

         The New York State Public Service Commission  ("PSC"),  by order issued
and  effective  May 20,  1996  in its  "Competitive  Opportunities"  proceeding,
endorsed a fundamental  restructuring  of the electric  utility  industry in New
York State,  based on competition in the generation and energy services  sectors
of the industry.

         On  March  13,  1997,  Con  Edison  and the PSC  staff  entered  into a
settlement agreement, dated March 12, 1997, with  respect  to  this proceeding
(the "Settlement Agreement").  A copy of the Settlement  Agreement is filed as
an exhibit to this report.

         The Settlement  Agreement,  which is subject to PSC approval,  provides
for a transition to a competitive electric market by instituting "retail access"
over a five-year period (the  "Transition"),  a rate plan for the Transition,  a
reasonable opportunity to recover prior utility investments and commitments that
may not be recoverable in a competitive  electric  market (often  referred to as
"strandable" costs), the divestiture by Con Edison to unaffiliated third parties
of at least 50 percent of its New York City  fossil-fueled  generating  capacity
and,  subject  to Con  Edison  shareholder  and  other  approvals,  a  corporate
reorganization into a holding company structure. A PSC order with respect to the
Settlement Agreement is expected by mid-1997.

         Con Edison  believes that the  Settlement  Agreement will not adversely
affect its  eligibility to continue to apply  Statement of Financial  Accounting
Standards No. 71,  "Accounting  for the Effects of Certain Types of Regulation."
If such eligibility were adversely  affected,  a material  write-down of assets,
the amount of which is not presently determinable, could be required.

Retail Access.  Con Edison will  implement an energy and capacity  retail access
program that will permit its customers to choose  alternative  energy suppliers.
The  delivery  of  electricity  to  customers  will  continue  to be through the
Company's  transmission and distribution systems. The program will begin in Fall
1997 with certain  large  customers and be expanded to 500 megawatts of customer
load within 12 months  following PSC approval of the Settlement  Agreement.  The
program will be further  expanded in annual  increments.  Con Edison will target
the phase-in of retail  access to make it  available to all of its  customers by
the earlier of 24 months after the  Independent  System  Operator (see "FERC ISO
FILING,"  below) becomes fully  operational  or December 2002.  This schedule is
subject to  adjustment  as  circumstances  warrant.  In  general,  Con  Edison's
delivery rates for retail access  customers during the Transition will equal the
rate applicable to other  comparable Con Edison  customers less the market value
of the energy and capacity being supplied for customers by the other sellers.





                                      - 3 -

Rate Plan. The rate plan reduces the generation-related revenues that Con Edison
would have  received  over the  five-year  Transition  had  current  rate levels
remained in effect by $655  million.  Base rates will be lower by 25 percent for
Con  Edison's  largest  industrial  customers  and,  by  the  last  year  of the
Transition,  will  be  lower  by 10  percent  for  other  large  industrial  and
commercial  customers and 3.3 percent for  residential and other  customers.  In
general, base electric rates will not otherwise be changed during the Transition
except  in the  event  of  changes  in costs  above  anticipated  annual  levels
resulting  from legal or regulatory  requirements  (including a  requirement  or
interpretation  resulting  in  Con  Edison's  refunding  its  tax-exempt  debt),
inflation in excess of a 4 percent  annual  rate,  property  tax  increases  and
environmental  costs,  or in the  event  Con  Edison's  rate of  return  becomes
unreasonable for the provision of safe and adequate service.

         The  Settlement  Agreement  also  provides,  among other things,  for a
non-bypassable  system benefits  charge to recover,  to the extent not otherwise
recovered,  the costs of required  research and development,  energy  efficiency
programs and programs to assist  low-income  customers,  and a penalty mechanism
(estimated  maximum,  $26  million  per year) for  failure to  maintain  certain
service quality and reliability standards.

         For any Transition rate year, 50 percent of any earnings in excess of a
rate of return of 12.9  percent on electric  common  equity will be retained for
shareholders and 50 percent will be applied for customer benefit,  with one-half
of such amount to be applied to a reduction of rates or as otherwise  determined
by the PSC and the  balance to be deferred  and applied to reduce the  Company's
generating plant balances through additional  depreciation  expense. The rate of
return  calculation will exclude any incentives and reflect any amounts by which
the rate of return for earlier  Transition  rate years fell below 11.9  percent.
This  earnings  sharing  will end  beginning  in the year in  which  Con  Edison
fulfills its divestiture  commitment (discussed below) or in which 15 percent of
the service area peak load  (excluding  the existing load served by the New York
Power Authority) is supplied other than by Con Edison.

         The Settlement Agreement supersedes the provisions of Con Edison's 1995
electric rate agreement  prescribing  overall electric revenue levels for the 12
months ending March 31, 1998.  The  Settlement  Agreement  also  eliminates  the
provisions  of the 1995  electric  rate  agreement  for  incentives or penalties
related to the Enlightened Energy program and customer service performance,  the
Electric  Revenue  Adjustment and related  Revenue per Customer  mechanisms (the
"modified  ERAM"),  earnings sharing and  reconciliation  of amounts included in
base rates with actual costs for pensions  and other  post-employment  benefits,
capacity  charges under Con Edison's  contracts with  non-utility  generators of
electricity ("NUGs"),  Enlightened Energy program and renewable energy expenses,
property taxes and research and development  expenses.  The Settlement Agreement
also  requires the reversal of all related  balances at March  31,1997,  the net
effect  of  which  is not  expected  to be  material.  An  incentive-based  fuel
adjustment clause, initially similar to the partial pass-through fuel adjustment
clause under the 1995  electric  rate  agreement,  will be in effect  during the
Transition.





                                      - 4 -

Divestiture  Commitment.  Con Edison has agreed to divest to unaffiliated  third
parties  at  least 50  percent  of its New York  City  fossil-fueled  generating
capacity  no later  than  December  2002,  unless the PSC  determines  that such
divestiture  should be delayed or reduced  (to  maximize  sales price or address
other  developments).  Divestiture  could also be delayed  under  certain  other
circumstances.  Con Edison  generating units not divested to unaffiliated  third
parties might be  transferred  to an  unregulated  affiliate of Con Edison.  Con
Edison has agreed to submit a  detailed  divestiture  plan to the PSC within one
year of the PSC's  approval of the Settlement  Agreement.  The PSC could approve
the divestiture plan as submitted, initiate a proceeding to address market power
or other concerns, or request Con Edison to respond to such concerns.


Recovery of Prior  Investments and Commitments.  Potential  strandable costs for
Con Edison are those prior utility  investments and commitments  that may not be
recoverable in a competitive retail electric market. Con Edison estimates1 that,
on a present value basis,  its electric  strandable  costs could be between $4.7
billion and $6.2 billion,  including an estimated  $650 million  relating to its
fossil-fueled plants; $1.1 billion relating to its nuclear generating operations
(including  decommissioning  costs);  and $3 billion to $4.5 billion relating to
capacity charges under Con Edison's contracts with NUGs.

         During  the  Transition,  Con  Edison  will  continue  to  recover  its
potential electric  strandable costs in the rates it charges all customers.  Con
Edison will also provide  during the  Transition  for $350 million of additional
depreciation  for its  fossil-fueled  generating  units and $45  million for its
Indian Point 2 nuclear unit. In addition,  as indicated above,  certain "excess"
earnings will be applied as an offset to strandable costs.

         Following  the  Transition,  Con  Edison  will be  given  a  reasonable
opportunity to recover remaining electric  strandable costs, as adjusted for any
after-tax net gain or loss from divestiture or transfer of Con Edison generating
units,   through  a   non-bypassable   charge  to   customers.   For   remaining
fossil-related  strandable  costs,  the recovery period will be 10 years and for
the Indian Point 2 nuclear unit, the recovery period will be the  then-remaining
life  of the  unit.  With  respect  to its NUG  contracts,  Con  Edison  will be
permitted to recover at least 90% of the amount by which the actual costs of its
purchases  under the  contracts  exceed market value after the  Transition.  Any
potential  disallowance after the Transition will be limited to the lower of (i)
10% of the  above-market  costs or (ii)  $300  million  (in 2002  dollars).  The
potential disallowance will be offset by NUG contract mitigation achieved by Con
Edison  after  the  beginning  of the  Transition  period  and 10% of the  gross
proceeds  of  generating  unit  sales  to third  parties.  The  Company  will be
permitted a reasonable  opportunity to recover any costs subject to disallowance
that are not  offset by these two  factors  if it makes  good  faith  efforts in
implementing  provisions of the Settlement  Agreement leading to the development
of a competitive electric market in its service territory.


___________
1 These estimates are forward-looking statements. Actual stranded costs might be
materially higher or lower from these estimates because of factors affecting the
future market price of capacity (such as competition  among capacity  providers,
changes  in  energy  usage  patterns  or  economic   conditions,   technological
developments,  or installation of new, or retirement of existing,  generation or
transmission  capacity),  changes in laws or  regulations,  and other  presently
unknown or unforeseen factors.





                                      - 5 -

         Any financing savings from  "securitization" of Con Edison's strandable
costs are expected to be applied to further reduce  customer  rates.  Subject to
satisfying any conditions of any securitization  legislation enacted in New York
State, Con Edison could transfer its right to recover from customers the payment
for the strandable costs to a financing entity that would in return remit to Con
Edison the  proceeds of debt issued by the  financing  entity.  The debt,  which
would be non-recourse  to Con Edison,  would be secured by, and repaid from, the
future customer payments.


Corporate Structure.  The Settlement Agreement authorizes Con Edison to create a
holding  company  and  establishes   guidelines  governing   transactions  among
affiliates.  The formation of the holding  company is subject to the approval of
Con  Edison's  shareholders,  FERC  approval  and  the  consent  of the  Nuclear
Regulatory Commission.

         Upon  formation  of the  holding  company,  Con  Edison  will  become a
subsidiary of the holding  company,  and Con Edison's common  shareholders  will
automatically become the shareholders of the holding company. Con Edison expects
that the holding  company would initially also have  unregulated  energy supply,
energy services and new ventures subsidiaries.  The energy supply subsidiary may
become an  unregulated  owner and  operator  of electric  generating  plants and
marketer of electricity. It is expected that Con Edison's existing gas marketing
subsidiary,  ProMark Energy, Inc., will be transferred to the holding company to
become a full-service provider of energy services engaging in both wholesale and
retail sales of electricity and gas and related services. Likewise, Con Edison's
existing  subsidiary,  Gramercy  Development,  Inc.,  is  expected to be the new
ventures subsidiary through which the holding company will develop other
opportunities in both energy and non-energy fields, both domestically and
internationally.

         The Settlement Agreement limits the dividends that Con Edison could pay
to the  holding  company to not more than 100  percent of income  available  for
dividends calculated on a two-year rolling average basis.  Excluded from "income
available  for  dividends"  will be non-cash  charges to income  resulting  from
accounting changes or charges to income resulting from significant unanticipated
events. The limitation will not apply to dividends  necessary to transfer to the
holding  company  proceeds from major  transactions,  such as asset sales, or to
dividends  reducing Con Edison's  capital  ratio to a level  appropriate  to Con
Edison's business risk.


Litigation.  Pursuant to the Settlement Agreement,  Con Edison will terminate an
appeal of a November  1996  rejection  by the Supreme  Court of the State of New
York of a challenge to the PSC's May 20, 1996 order.






                                      - 6 -

FERC ISO FILING

     On January  31,  1997,  Con Edison  along with the other New York  electric
utilities  submitted a filing to the Federal  Energy  Regulatory  Commission for
approval of a fundamental  restructuring of the wholesale electric market in New
York State,  including  the  establishment  of an  independent  system  operator
("ISO"),  the New York State Reliability  Council ("NYSRC") and a power exchange
called the New York Power Exchange ("NYPE"). As proposed,  the existing New York
Power Pool will be  dissolved  and the ISO will  administer  a  state-wide  open
access  tariff and provide for the  short-term  reliable  operation  of the bulk
power  system in the  state.  The NYSRC  will have  primary  responsibility  for
developing,  and  monitoring  compliance  with,  rules to address the particular
system reliability needs of the state. The NYPE will be established to provide a
vehicle through which buyers and sellers may participate in the wholesale energy
and ancillary services markets.

         As proposed, generators of electricity could submit bids to sell energy
to, and load serving  entities could submit bids to buy energy from, the NYPE or
any other power  exchange.  Each power  exchange  would then submit its delivery
schedules to the ISO which would review them for  feasibility  and  reliability.
The energy market would use a "locational-based marginal pricing" mechanism that
takes into  account  transmission  limitations.  Generators  would also have the
opportunity to enter into bilateral contracts for electricity.

ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS

(b)      Exhibits

10 Agreement and Settlement, dated March 12, 1997, between Consolidated Edison
   Company of New York, Inc. and the Staff of the New York State Public Service
   Commission (without Appendices).


                                    SIGNATURE

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                                     CONSOLIDATED EDISON COMPANY
                                                              OF NEW YORK, INC.

                                                      By:     JOAN S. FREILICH
                                                              JOAN S. FREILICH
                                                      Senior Vice President and
                                                        Chief Financial Officer

DATE:    March 13, 1997











                            BEFORE THE NEW YORK STATE
                            PUBLIC SERVICE COMMISSION


- --------------------------------------------------x

In the Matter of Consolidated Edison Company      :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12,      :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and    :
certain related transactions.

      PSC Case No. 96-E-0897                      :

- --------------------------------------------------x







                           AGREEMENT AND SETTLEMENT














Dated:  March 12, 1997





                                     
                              TABLE OF CONTENTS


I. INTRODUCTION________________________________________________________1

  1. The Commission's May 20, 1996 Order_______________________________1

  a. Procedural History and Background_________________________________1

  b. The Requirements of the May 20, 1996 Order________________________2

  c. Con Edison's October 1, 1996 Filing_______________________________3

  2. Negotiations Among The Parties____________________________________3

II. RATE PLAN__________________________________________________________4

  Objectives and Time Period Covered___________________________________4

Paragraph 1____________________________________________________________4

Paragraph 2____________________________________________________________4

Paragraph 3____________________________________________________________4

  Rate and Revenue Levels______________________________________________5

Paragraph 4____________________________________________________________5

Paragraph 5____________________________________________________________6

Paragraph 6____________________________________________________________6

Paragraph 7____________________________________________________________7

  Applicability of Case 94-E-0334 Settlement Agreement_________________7

Paragraph 8____________________________________________________________7

Paragraph 9____________________________________________________________7

  Pensions/OPEBs and Exceptions to Base Rate Freeze____________________9

Paragraph 10___________________________________________________________9

Paragraph 11___________________________________________________________9

Paragraph 12__________________________________________________________11

  Disposition of Strandable Costs_____________________________________12

Paragraph 13__________________________________________________________12

Paragraph 14__________________________________________________________14

Paragraph 15__________________________________________________________16

  Comprehensive Nature of Settlement Agreement________________________17

Paragraph 16__________________________________________________________17

  Reporting___________________________________________________________18




Paragraph 17___________________________________________________________18

Calculation and Disposition of Certain Earnings________________________18
Paragraph 18___________________________________________________________18

Rate Design and Revenue Allocation_____________________________________18

  19. Case 94-E-0334 Rate Design Changes_______________________________18

  20. Unbundled Tariffs________________________________________________19

  21. Residential Time-of-Use Rates____________________________________20

  22. Industrial Employment Growth_____________________________________20

  23. Low Income Rate Program__________________________________________21

  24. RY1 Through RY5 Tariffs Implementing This Agreement______________21

  25. Rate Design Flexibility_________________________________________21

  26. System Benefits Charge Program__________________________________22
  27. Miscellaneous Rate Provisions___________________________________23

  28. Economic Development Rate Programs______________________________24

  29. Retail Access Tariff and Retail Access Regulation_______________24

  30. Regulatory Reform, Customer Operations  Procedures, and Classification
     of Facilities____________________________________________________25

  31. NYPA____________________________________________________________27

  (i) Revenue Deficiency Under the 1994 Cost-of-Service Study_________27

  (ii)In-City Generation Capacity_____________________________________28

  (iii)Application of Transportation/Delivery Charge__________________28

   (iv)_______________________________________________________________29

   32.  Fuel Adjustment Clause_____________________________________   29

  33. Customer Service and Electric Service Reliability Incentives____31

III. RETAIL ACCESS PROGRAM____________________________________________31

  Objectives and Phase-in Target Dates________________________________31

Paragraph 1___________________________________________________________31

Paragraph 2___________________________________________________________32

Paragraph 3___________________________________________________________32

Paragraph 4___________________________________________________________32

Paragraph 5___________________________________________________________33

  Retail Access Prior to A Fully Operational ISO______________________33

Paragraph 6___________________________________________________________33

Paragraph 7___________________________________________________________34




Paragraph 8___________________________________________________________34

  Retail Access After A Fully Operational ISO_________________________35

Paragraph 9___________________________________________________________35

Paragraph 10__________________________________________________________35

Paragraph 11__________________________________________________________35

IV. DIVESTITURE_______________________________________________________36

  1. Requirements for Divestiture_____________________________________36

  2.  Divestiture Parameters and Methodology__________________________37

  3. Divestiture Plan Procedures______________________________________37

  4. Post-Rate Plan Period____________________________________________38

V. CORPORATE STRUCTURE________________________________________________38

  1. Formation of Holding Company_____________________________________38

  2. Functional Unbundling____________________________________________39

  3. The RegCo________________________________________________________39

  4. Affiliate Relations - In General_________________________________40

  5. Transfer of Assets_______________________________________________41

  6. Personnel________________________________________________________41

  7. Provision of Services and Goods__________________________________42

  8. Maintaining Financial Integrity__________________________________43

  9. Standards of Competitive Conduct_________________________________44

  10. Access to Books and Records and Reports_________________________45

  11. Independent Auditor_____________________________________________46

  12. Royalty_________________________________________________________46

  13. Miscellaneous___________________________________________________46

VI. RESTRUCTURING-RELATED ACTIONS_____________________________________47

VII. CUSTOMER EDUCATION PROGRAM_______________________________________48

VIII. MISCELLANEOUS___________________________________________________49

  1. Provisions Not Separable:  Effect of Commission Modifications____49

  2. Provisions Not Precedent_________________________________________49




Appendix A - Miscellaneous Tariff Changes


Appendix B - SBC Amounts


Appendix C -  Other Rate Changes
Appendix D - 25 Cycle System

Appendix E - NYPA Load


Appendix F - Fuel Targets


Appendix G - Service/Reliability Incentives


Appendix H - Corporate Structure


Appendix I - Cost Guidelines

Appendix J - Privilege








                           BEFORE THE NEW YORK STATE
                           PUBLIC SERVICE COMMISSION

- -------------------------------------------------------------x
In the Matter of Consolidated Edison Company     :
of New York, Inc.'s plans for (1) electric rate/
restructuring pursuant to Opinion No. 96-12,         :
and (2) the formation of a holding company
pursuant to PSL, Sections 70, 108 and 110, and     :
certain related transactions.
                                             :
      P.S.C. Case No. 96-E-0897
- -------------------------------------------------------------x


                           AGREEMENT AND SETTLEMENT

I.    INTRODUCTION

      1.    The Commission's May 20, 1996 Order

      a.    Procedural History and Background

            In 1993, the Public Service Commission (the "Commission")  initiated
a  proceeding   aimed  at  addressing   numerous  issues  related  to  potential
competition in the regulated  energy markets in New York State.  Case 93-M-0229,
Proceeding  on Motion of the  Commission  to Address  Competitive  Opportunities
Available  to  Customers  of Electric  and Gas Service and Develop  Criteria for
Utility  Responses,  Order  Instituting  Proceeding (March 19, 1993) (changed to
Case  94-E-0952,  by order  dated  November  30,  1994,  to reflect new focus on
electric service) (the "COB proceeding").

            On July 11, 1994, the Commission issued its Opinion and Order
Regarding Flexible Rates, Opinion No. 94-15, Case 93-M-0229 (July 11, 1994).
In the July 11, 1994 order, the Commission announced "a possible second phase
of this proceeding: an investigation into the appropriate market structure
and regulatory regime for the future." Id. at 32.

            On August 9, 1994,  the  Commission  instituted  phase II of the COB
proceeding,  Order Instituting Phase II of Proceeding, Case 93-M-0229 (August 9,
1994). This phase of the COB proceeding was intended "to identify regulatory and
ratemaking  practices that will assist in the  transition to a more  competitive
electric  industry   designed  to  increase   efficiency  in  the  provision  of
electricity while maintaining safety, environmental,  affordability, and service
quality goals." Id. at 1-2. Parties to phase II of the COB proceeding were urged
to work  together to "examine  issues  related to the  establishment  of a fully
efficient  wholesale market for electricity and any pricing reforms necessary to
reflect those market efficiencies in retail customer rates." Id. at 3.



                                       1


            On June 7, 1995, the Commission adopted "final principles" to
guide the transition to greater competition in the electric industry.  See
Opinion No. 95-7, Case 94-E-0952 (June 7, 1995).

            On December  21,  1995,  Administrative  Law Judge Judith A. Lee and
Ronald Liberty,  then-Deputy Director of the Energy and Water Division, issued a
Recommended Decision addressing  implementation of the restructuring principles.
On May  20,  1996,  the  Commission  issued  its  Opinion  and  Order  Regarding
Competitive Opportunities for Electric Service, Opinion No. 96-12 ("May 20, 1996
order").


      b.    The Requirements of the May 20, 1996 Order


            The Commission's stated vision for the electric utility industry
is "(1) effective competition in the generation and energy services sectors;
(2) reduced prices resulting in improved economic development for the State
as a whole; (3) increased consumer choice of supplier and service company;
(4) a system operator that treats all participants fairly and ensures
reliable service; (5) a provider of last resort for all consumers and the
continuation of a means to fund necessary public policy programs; (6) ample
and accurate information for consumers to use in making informed decisions;
and (7) the availability of information that permits adequate oversight of
the market to ensure its fair operation." Id. at 24-25.  In its May 20, 1996
order, the Commission directed Consolidated Edison Company of New York, Inc.
("Con Edison" or "the Company") and four other electric utilities to each
file a rate/restructuring plan consistent with the Commission's policy and
vision for increased competition.  Id. at 74-75; see also id. at 92.

            The Commission stated that these utility plans "should address, at a
minimum,"  matters including "(1) the structure of the utility both in the short
and long term,  . . . a  description  of how that  structure  complies  with our
vision and, in cases where  divestiture  is not proposed,  effective  mechanisms
that adequately address resulting market power concerns;  (2) a schedule for the
introduction  of retail access to all of the utility's  customers,  and a set of
unbundled tariffs that is consistent with the retail access program;  (3) a rate
plan to be effective for a significant  portion of the  transition" and numerous
other issues relating to strandable costs, load pockets,  energy services, and a
system benefits charge. Id. at 75-76, 90.

            In addition,  the  Commission  directed the utilities to collaborate
with the  Department  of Public  Service Staff  ("Staff")  and other  interested
parties to "accomplish  technical  studies" on subjects  including load pockets,
market   prices,   energy   services   companies  and  reporting   requirements.
Collaborative  efforts were also  directed on public  educational  forums and on
"necessary  FERC filings," which have centered on development of the Independent
System Operator and Power Exchange. Id. at 63-64.



                                       2


      c.    Con Edison's October 1, 1996 Filing


            On October 1, 1996,  Con Edison filed a  rate/restructuring  plan in
response to the May 20, 1996 order (the "October 1, 1996 plan").  The October 1,
1996 plan proposed a transition to a competitive  electric  market,  including a
plan  for  retail   competition,   a  multi-year  rate  plan,  and  a  corporate
reorganization into a holding company structure.

      2.    Negotiations Among The Parties


            The  Commission  established  Case 96-E-0897 to examine Con Edison's
plan, and the Hon. Judith A. Lee was appointed as presiding  Administrative  Law
Judge.  Nearly 70 parties  intervened and about 40 actively  participated in the
proceeding.  By Order  Establishing  Procedures and Schedule  (issued October 9,
1996 as a one-  Commissioner  order  and  confirmed  by the full  Commission  on
October 24, 1996) ("the October 9 order"), the Commission established a schedule
for this  proceeding.  Stating that "a  negotiated  outcome is  preferable  to a
litigated  outcome," the Commission  stated that  "discussions  and negotiations
among  the  parties  are  strongly   encouraged"   and   established  a  "90-day
[negotiating] period." Id., p. 3. To facilitate  negotiations,  the Commission's
October  9  order  waived  certain  of  its  settlement  guidelines  (Id.;  Case
90-M-0255, Settlement and Stipulation Agreements, Opinion No. 92-2, issued March
24, 1992).

            Over the period of  October  15 to  December  20,  1996,  Con Edison
conducted  a series of twelve  "technical"  meetings  with the  parties  to this
proceeding at which the Company provided  detailed  presentations on its October
1, 1996 plan,  provided  supporting  data, and answered  parties'  questions and
listened to their  observations  and  concerns.  Also during  this  period,  the
parties  conducted  extensive  discovery  of Con  Edison.  Following  notice  of
impending settlement negotiations filed with the Secretary of the Commission and
sent  to all  parties,  Con  Edison  and the  parties,  including  Staff,  began
settlement  negotiations  on November 20, 1996 to  determine  whether they could
reach  accord  on a  negotiated  settlement  of  the  issues  presented  by  the
Commission's  vision for the electric industry and Con Edison's plan.  All-party
negotiation  conferences  were conducted on November 20, 22, 26,  December 6 and
11, 1996, and February 25, 1997, and numerous  other  conferences  among various
parties were conducted as well.

            On November 4 and 26, and  December 16,  1996,  Judge Lee  conducted
procedural  conferences  at which  the  parties,  inter  alia,  reported  on the
progress of settlement negotiations.  At these conferences,  the Judge monitored
the progress of the parties to assure  compliance with the scheduling  mileposts
of  the   Commission's   October  9  order.  The  Secretary  of  the  Commission
subsequently  issued notice of various  extensions of the negotiating  period to
facilitate settlement  negotiations.  In her December 20, 1996 Notice, Judge Lee
stated  that it was  the  "Commission's  explicit  preference  for a  negotiated
resolution  of this  proceeding  instead of a litigated  outcome"  and urged the
parties "to continue to make good faith efforts to reach a settlement, if at all
possible." Case 96-E-0897, Procedural Ruling, December 20, 1996, pp. 2-3.



                                       3


            On January 16, 1997, the Company and Staff informed the parties that
they had made significant progress in resolving the issues to this case and that
they  were  seeking  to  prepare  a  detailed  settlement  proposal.   Following
submission and discussion of that detailed proposal, the undersigned have agreed
to settle the issues in this case on the terms set forth below.

            The  issues  involved  in this  proceeding  are  complex,  and their
resolution is likely to have long-term impacts on the New York City metropolitan
area,  including impacts on the cost of electric service, on the way electricity
is  provided  in  Con  Edison's  service  area  and on  Con  Edison's  business.
Nevertheless,  after thorough investigation and discussion,  the parties to this
settlement  have agreed to resolve  these complex and vital issues by settlement
rather than litigation.  The signatories believe that this settlement gives fair
consideration  to the interests of Con Edison's  customers,  investors and other
stakeholders and will facilitate implementation of the Commission's vision for a
competitive electric industry as stated in its May 20, 1996 order.

II.   RATE PLAN

      Objectives and Time Period Covered


1.    The  Commission's May 20, 1996 order envisioned that a "rate plan"
      be  established  "to  be  effective  for  a  significant  portion  of  the
      transition."  May 20,  1996 order,  p. 76. The parties  have agreed to the
      elements  of such a "rate  plan." The rate plan is designed  with  several
      objectives, including the following: to provide ratepayers with meaningful
      rate  reductions  during the transition to competition in order to enhance
      the economic  vitality of the service area; to establish  reasonable  rate
      and revenue levels over an extended period to facilitate the transition to
      competition;  to provide Con Edison with  opportunities to earn reasonable
      rates of return on shareholder  investment required for the development of
      the  electric  energy  infrastructure  in New York  City  and  Westchester
      County; to resolve difficult rate and rate-related issues arising from the
      transition,  including the rate treatment of  "strandable"  costs;  and to
      provide  the  Company  with the  ability to  maintain  the  integrity  and
      reliability of the electricity  supply and delivery systems in its service
      territory.

2.    The rate plan covers the five-year period ending March 31, 2002.  The
      first year of the plan ("RY1") is the twelve months ending March 31,
      1998.  The second rate year ("RY2") is the twelve months ending March
      31, 1999.  The third rate year ("RY3") is the twelve months ending
      March 31, 2000.  The fourth rate year ("RY4") is the twelve months
      ending March 31, 2001.  The fifth rate year ("RY5") is the twelve
      months ending March 31, 2002.  The rate plan (Section II. 11, 15, 16)
      also establishes certain principles to be considered in establishing
      revenue requirements in the period following RY5.

3.    This rate plan covers Con Edison's rates and charges for retail
      electric sales and for electric delivery services.  As currently
      effective, Con Edison's rates and charges for electric service are
      contained in Con Edison's Schedule for Electricity Service PSC No. 9
      Electricity (this rate schedule and successors thereto are referred to
      herein as "PSC No. 9"



                                       4


      or the "PSC No. 9 rate schedule"); in the PASNY
      No. 4 (FERC No. 96) Delivery Service Rate Schedule Implementing and
      Part of the Service Agreement between the Power Authority of the State
      of New York (PASNY) and the Consolidated Edison Company of New York,
      Inc. (the Company), dated March 10, 1989, for the delivery by the
      Company of Power and Associated Energy to Authority Public Customers
      (this rate schedule and successors thereto are referred to herein as
      "PASNY No. 4" or the "PASNY No. 4 rate schedule"); and in the Economic
      Development Delivery Service No. 2 (FERC Nos. 92 and 96) Economic
      Development Delivery Service Rate Schedule Implementing and Part of:
      (1) the "Service Agreement for the Delivery of Power and Energy"
      between the Power Authority of the State of New York ("PASNY") and the
      Consolidated Edison Company of New York, Inc. ("the Company"), dated
      March 10, 1989, for the Delivery by the Company of Power and Associated
      Energy to Authority Economic Development Customers; (2) the "Agreement
      for the Delivery of Power and Energy from the James A. FitzPatrick
      Power Project" between the County of Westchester, acting through the
      Westchester Public Utility Service Agency and the Company, made April
      24, 1987; and (3) the "Agreement between the City of New York and
      Consolidated Edison Company of New York, Inc. for the Delivery of Power
      and Energy from the James A. FitzPatrick Nuclear Power Project" between
      the City of  New York, acting through the New York Public Utility
      Service and the Company, made October 23, 1987 (this rate schedule and
      successors thereto are referred to herein as "EDDS" or the "EDDS rate
      schedule").  An additional tariff covering retail access will be
      established pursuant to Section III of this Agreement.

      Rate and Revenue Levels


4.    The rate plan: (i) reduces PSC No. 9 rates and, therefore, the revenues
      that Con Edison will receive over the five-year period ending March 31,
      2002 compared to the level it would receive had the PSC No. 9 schedule
      in effect as of the date of this rate settlement remained in effect;
      (ii) reallocates revenues from the PSC No. 9 tariff to the PASNY No. 4
      tariff to be consistent with cost-of-service indications and the
      electric rate settlement approved in Case 94-E-0334, Proceeding on
                                                           -------------
      Motion of the Commission as to the Rates, Charges, Rules and
      ------------------------------------------------------------
      Regulations of Consolidated Edison Company of New York, Inc., Opinion
      -----------------------------------------------------------
      No. 95-3, issued April 6, 1995 ("Case 94-E-0334 settlement agreement");
      (iii) implements rate design changes to the PSC No. 9, PASNY No. 4 and
      EDDS rate schedules in order to implement rate design and revenue
      allocation provisions of the Case 94-E-0334 settlement agreement and to
      facilitate the transition to competition; and (iv) provides a framework
      for the transition to competition.  This transition framework addresses
      mitigation and recovery of stranded costs, allocation of certain cost
      reductions and benefits that many expect to flow from the transition to
      competition, encourages the future infrastructure investments essential
      to support continued electric reliability, makes limited provision for
      increased costs associated with unanticipated developments possible
      during the transition, and provides incentives to maintain service
      quality and reliability during the transition.



                                       5


5.    Rates  of all  service  classes  in the PSC No.  9 rate  schedule  will be
      reduced under the rate plan. The  allocation of these revenue  benefits to
      the rate  years  covered by the rate plan and to the  affected  customers,
      exclusive of any system benefits charges imposed per Section II.26 herein,
      are set forth in the table below:

                        Revenue Reductions (excl. grt)
                                 ($millions)

P.S.C. No. 9                                              Cumulative Revenue
Customer Group          RY1   RY2    RY3   RY4    RY5   Reduction by end of RY5
- --------------          ---   ---    ---   ---    ---   -----------------------
- - SC 4 Rate II and 9 -
  Rate II
  revenue reduction      17.4  34.8   52.2  69.6   87.0    261.0
  est. % avg. bill
  reduction               2%    4%     6%    8%     10%
- - All other 1
  revenue reduction      23.2  44.2   67.8  91.4   127.4   354.0
  est. % avg. bill
  reduction               0.6%  1.2%   1.8%  2.4%   3.3%
- - industrial employment
  growth program          8     8      8      8       8     40.0
  per Section II.22

Total revenue reduction  48.6  87.0   128.0 169.0  222.4   $655
                         ----  ----   ----- -----  -----   -----


6.    The rate and revenue benefits reflected in Section II.5 are subject to
      being increased if two significant sources of ratepayer savings arise
      during the transition.  These are: (i) savings that would be derived
      from successful implementation of state  programs authorizing
      "securitization" of certain generation and purchased power costs, and
      (ii) savings from the successful implementation of utility tax reform
      in New York.  For example, pending securitization legislation in New
      York would authorize the Commission to issue rate orders guaranteeing
      the application of specific utility revenue streams to trusts or other
      financing vehicles established for the purpose of financing (at lower
      cost) generation and generation-related assets and liabilities viewed
      as strandable under a fully competitive electric market.  Legislation
      to reform the method of utility taxation in the state from a
      revenue-based method to an income-based method has also been under
      consideration and would be consistent with the need expressed in the
      May 20, 1996 order (pp. 91-92) to "ease the high tax burdens" in the
      state.  Both securitization and


- --------
1  "All  other"  customer  classes  in  PSC  No.  9 rate  schedule  are  Service
Classification  ("SC") No. 1 (residential and religious),  2 (general-small),  3
(back-up    service),    4   -    Rates    I    and    III    (commercial    and
industrial-redistribution), 5 (electric traction systems), 6 (public and private
street lighting),  7 (residential and religious - heating), 8 (multiple dwelling
redistribution),  9  -  Rates  I  and  III  (general-large),  10  (supplementary
service),  12  (multiple   dwelling-space   heating)  and  13  (bulk  power-high
tension-housing developments).


                                       6


      tax reform, if implemented, would be
      expected to translate into meaningful savings for utility consumers.
      Under this settlement agreement,  unless otherwise required by law, the
      financing savings resulting from securitization will be applied to
      reduce rates for the PSC No. 9 customers other than the customers
      served under SC Nos. 4 - Rate II and 9 - Rate II.  Similarly, tax
      reform savings, if achieved, are, unless otherwise required by law,
      anticipated to be applied to the benefit of the customers currently
      bearing the tax expenses under the Company's rate schedules.


   7. Other than as provided in Sections  II. 11, 12, 25, 27 of this  settlement
      agreement,  the base rates  established  in the Company's PSC No. 9, PASNY
      No. 4, and EDDS rate schedules for RY1 through RY5 in compliance  with the
      Commission  order  approving  this  settlement  agreement  will neither be
      increased nor decreased prior to April 1, 2002, from the rate levels to be
      set forth in the rate  schedules  following  Commission  approval  of this
      settlement  agreement.  The Company's "base rates" are the demand,  energy
      and customer charges in the PSC No. 9, PASNY No. 4, EDDS and retail access
      rate   schedules;   "base  rates"  do  not  include  the  fuel  adjustment
      (applicable  to PSC No. 9), the Statement of Percentage  Increase in Rates
      and Charges  (covering  revenue and similar taxes),  the Statement of Case
      96-E-0897  Adjustments  (Section  II.11  herein)  and the system  benefits
      charge  (Section II.26  herein).  The rate plan precludes the Company from
      increasing  rates due to  increased  costs or lower sales  levels prior to
      April  1,  2002,  except  as  provided  in  Sections  II.  11,  12 of this
      settlement   agreement.   The  rate  plan  has  the  immediate  impact  of
      eliminating  the $87.1 million  electric rate increase filed on October 2,
      1996  to  implement  the  Case  94-E-0334   settlement   agreement.   This
      disposition  of the Case  94-E-0334  settlement  agreement  equates  to an
      additional estimated total five-year savings to customers of $436 million.
      The plan also requires the Company to absorb  expected  inflation  through
      March 31, 2002.

      Applicability of Case 94-E-0334 Settlement Agreement


8.    Con Edison's current electric rates are governed by the Case 94-E-0334
      settlement agreement. The third year in the Case 94-E-0334 settlement
      agreement is the twelve months ending March 31, 1998, and the third
      rate year, therefore, covers the same twelve months as RY1 of the rate
      plan. As stated in Section II.7, the parties agree that, in light of
      the rate plan, the provisions of the Case 94-E-0334 settlement
      agreement prescribing overall electric revenue levels for Con Edison
      for the twelve months ended March 31, 1998, will be superseded by this
      settlement agreement.  The other provisions of the Case 94-E-0334
      settlement agreement (e.g., rate design, incentive mechanisms) will be
                            ----
      implemented as prescribed in Section II.9 below and in Sections II. 19,
      31, 32 of this settlement agreement.

9.   Implementation of the principal accounting and general ratemaking
     provisions of the Case 94-E-0334 settlement agreement in RY1 will be
     as follows:



                                       7


       (i)   the revenue requirement increase for the third rate
            year (12 months ending March 31, 1998) (Case
            94-E-0334 settlement agreement, pp. 14-18) is agreed
            to be eliminated and all credits and debits recorded
            in order to implement the ratemaking provisions of
            the Case 94-E-0334 settlement agreement as of March
            31, 1997 will be reversed and the effects of such
            reversals reflected in income; the Company will
            provide to Staff journal entries implementing this
            prescribed accounting within 30 days following
            Commission approval of this settlement agreement.

       (ii)  the revenue per customer clause (Case 94-E-0334
            settlement agreement, p. 16 and Appendix C) will be
            terminated beginning with the month of April 1997.

       (iii)the  following  expenses  required to be  reconciled  (in full or in
            part) under the Case 94-E-0334  settlement  agreement will no longer
            be subject to reconciliation  beginning with the month of April 1997
            (except  insofar as  reconciliation  of them is implemented  for the
            system  benefits  charge per  Section  II. 26  herein):  demand-side
            management expenses,  independent power production capacity charges,
            Home Insulation and Energy  Conservation  Act expenses,  pension and
            other post-employment benefits ("pension/OPEBs")  expenses, research
            and  development  expenses,  renewables  expenses  and  property tax
            expenses  (Case  94-E-0334  settlement  agreement,  pp.  9-10,  17).
            Recovery  of  pensions/OPEBs  is subject  to  Section  II.10 of this
            settlement agreement; recovery of property tax expense is subject to
            Section II.11 of this settlement agreement.

       (iv) the following  provisions of the Case 94-E-0334 settlement agreement
            will not be effective  for RY1 of the rate plan or  thereafter:  the
            demand-side  management  incentive,  the customer service incentive,
            the   electric   service   reliability   incentive,   the   earnings
            calculations provision and the "miscellaneous  provisions" provision
            (Case  94-E-0334  settlement  agreement,  Sections  F, K, L, M and P
            [except  subsection  (iv)  thereof,  "nuclear  refueling  expense"],
            respectively).

       (v)   the following provisions of the Case 94-E-0334
            settlement agreement, as implemented in Section II.
            19, 31, 32 of this settlement agreement, will
            continue in effect in RY1:  the electric fuel
            adjustment, buy back rates and marginal energy costs
            provision, and the rate design and revenue allocation
            provision (Case 94-E-0334 settlement agreement,
            Sections G and H and Appendix D, respectively).




                                       8


      Pensions/OPEBs and Exceptions to Base Rate Freeze


10.   The Commission's policy statement on accounting and ratemaking for
      pensions/OPEBs was issued in 1993 and scheduled for re-examination
      beginning in 1998.  Case 91-M-0890, Statement of Policy and Order
                                          -----------------------------
      Concerning the Accounting and Ratemaking Treatment for Pensions and
      -------------------------------------------------------------------
      Postretirement Benefits other than Pensions, issued September 7, 1993,
      -------------------------------------------
      p. 5.  The parties have considered the application of the policy
      statement to Con Edison in view of the rate plan.  The parties agree
      that, subject to approval of the settlement agreement by the
      Commission, effective April 1, 1997, the policy statement will no
      longer apply to Con Edison's electric, gas and steam rates and to its
      accounting policies, and the Company may determine to implement the
      "corridor" approach for pensions/OPEBs in accordance with Statement of
      Financial Accounting Standards Nos. 87 and 106.  Con Edison agrees that
      during the term of the rate plan, it will fund its pensions/OPEBs
      expense to the maximum extent possible on a tax-effective basis.  Con
      Edison also intends to manage its pension/OPEB expenses in a manner
      designed to produce equivalent levels of expense, subject to the
      implementation of the "corridor," after the rate plan period as if it
      had still been subject to the Commission's "true-up" policy.  The
      Company's Annual Report to the Commission will contain information
      regarding pension/OPEB funding and expense levels that will enable
      Staff to verify that the Company's expense and funding levels are
      consistent with the foregoing objectives.

11.   The Company's PSC No. 9, PASNY No. 4, EDDS and retail access base
      electric rates are subject to adjustment prior to March 31, 2002 for
      the following:

          (i)   If any law, rule, regulation, order, or other
               requirement or interpretation (or any repeal or
               amendment of an existing rule, regulation, order
               or other requirement) of a state, local or federal
               government body (including a requirement or
               interpretation resulting in Con Edison's refunding
               its tax-exempt debt and including income or other
               state, local and federal tax and state, local and
               federal fees and levies but excluding local
               property tax), results in a change in Con Edison's
               annual utility costs, compared to the levels in
               the year ending March 31, 1997,  in excess of $7.5
               million in any year, Con Edison will defer on its
               books of account the total effect of all such
               annual cost changes in excess of $7.5 million,
               with any such deferrals to be reflected in rates
               as set forth in this paragraph.

          (ii) Con  Edison's  local  property  taxes are  estimated to be $525.9
               million in RY1,  $540.1  million in RY2,  $554.6  million in RY3,
               $569.6 million in RY4, and $585.0 million in RY5. These rate-year
               estimates will be adjusted for the purposes of this



                                       9


               subparagraph solely  to  reflect   reductions  in  property taxes
               actually experienced due to the retirement, sale or transfer of
               generating units.  Con Edison  will  defer on its books of
               account the full amount of its actual property taxes above these
               estimated  levels(as adjusted as per the  preceding  sentence),
               with any such deferrals  to  be  reflected  in  rates  as  set
               set forth in this paragraph.  The  foregoing  excludes  the  
               effects of property tax refunds.  Eighty-six percent of any 
               property-tax  refund received by the Company in the RY1 through
               RY5 period will be deferred for the  benefit of  customers; 
               the  remaining  14  percent  will beretained by the Company.

          (iii)Con  Edison  will defer on its books of  account  and  reflect in
               rates as prescribed by this paragraph the following environmental
               costs: (i) site  investigation and remediation  ("SIR") costs for
               electric  operations in excess of $5 million  annually (SIR costs
               are the costs Con Edison incurs to investigate, remediate, or pay
               damages   (including   natural  resource  damages  but  excluding
               personal injury damages) with respect to industrial and hazardous
               waste or  contamination,  spills,  discharges  and  emissions for
               which  Con  Edison  is  responsible);   and  (ii)   environmental
               compliance,  prevention  and  improvement  costs  (excluding  SIR
               costs) in excess of $10  million  in annual  revenue  requirement
               (i.e.,  expenses plus carrying  charges on capital  additions not
               reflected in the Company's  1997-2001  capital  forecast)  (these
               costs are the costs of complying  with  legislative,  regulatory,
               judicial or other government rules or policies, including consent
               decrees,  related to the environment,  and the costs of proactive
               environmental  initiatives not required by law, undertaken either
               by the Company alone or in conjunction with others to improve the
               environment).  Any costs deferred under this subparagraph will be
               net of recoveries of these costs under insurance policies or from
               third parties. Amounts deferred hereunder will not be included as
               a cost of divestiture (Section IV.2 herein)

          (iv) If in any rate year  covered by the rate plan,  the GDP  Implicit
               Price  Deflator  as  measured  by Blue Chip  Economic  Indicators
               increases  by an amount  greater  than four  percent,  Con Edison
               will, in such rate year,  defer on its books of account an amount
               equal  to  the  product  of  the  actual  experienced  percentage
               increase above 4 percent times the escalation  base in effect for
               that rate year,  with such  deferred  amount to be  reflected  in
               rates as set forth in this paragraph.  The escalation base in RY1
               will be $1,050  million; the escalation  base in RY2 through RY5



                                       10


               will  be the  escalation  base  in RY1  increased  by the  actual
               percentage  increase in the GDP  Implicit  Price  Deflator in the
               succeeding  rate year or rate years  except  that the  escalation
               base will be reduced  to reflect  reductions  in  operations  and
               maintenance  production  expenses due to the retirement,  sale or
               transfer  of  generating  units.  Expenses  deferred  under  this
               subparagraph will be deferred in each succeeding year through RY5
               but such  succeeding  deferrals will be netted against the amount
               by which  escalation in a succeeding or preceding rate year falls
               below four percent  multiplied  by the  escalation  base for that
               year. If the GDP Implicit Price  Deflator is no longer  published
               or is  re-constituted  so as to  make  it  unusable,  a  suitable
               alternative means of inflation  measurement will be determined by
               the Commission.

          (v)   Deferrals of extraordinary expenses, including
               extraordinary operating and maintenance or capital
               costs, not covered by subparagraphs (i) through
               (iv) above, will be on petition to the Commission
               and subject to such materiality and other
               standards as may then apply as per PSC Case No.
               94-M-0667, In the Matter of Developing Guidelines
                          --------------------------------------
               for Use in Deferral Accounting in Ratemaking
               --------------------------------------------
               Matters for All Regulated Utilities or other
               -----------------------------------
               Commission determination.

      Amounts deferred on Con Edison's books of account under this paragraph and
      Section II.22 and VI.2 herein, whether they are credits or debits, will be
      reflected in rates through rate  adjustments  to be implemented in RY3 and
      RY5  of the  rate  plan.  Deferred  debits  or  credits  remaining  on the
      Company's  books after RY5 will be  reflected in rates set after March 31,
      2002.  Interest  on  deferred  debits and  credits  will be applied at the
      Commission-determined   unadjusted   customer   deposit  rate.   Any  rate
      adjustment  effective under this paragraph will be implemented pursuant to
      the "Statement of Case 96-E-0897  Adjustments"  to be effective  under the
      Company's rate schedules pursuant to this settlement  agreement  beginning
      in RY3.  The  Statement  and  changes  thereto  will  be  filed  with  the
      Commission and annexed to the Company's rate schedules. The Statement will
      set forth any adjustments to become  applicable  under this paragraph on a
      cents per kWhr  basis for  energy-only  service  classifications  and on a
      cents per kWhr and kW basis  for  demand-billed  service  classifications.
      Such rate adjustments  will be based on each class' relative  contribution
      to total pure base electric revenues; generation related costs will not be
      allocated to the PASNY No. 9 and EDDS tariffs.

12.   If a circumstance occurs which, in the judgment of the Commission, so
      threatens the Company's economic viability or ability to maintain safe
      and adequate service as to warrant an exception to this undertaking,
      Con Edison shall be permitted to file for an increase in base
      electricity rates at any time under such circumstances.  Con Edison may




                                       11


      seek a general rate increase should its forecast return on common
      equity fall below 8 percent (pro-formed to a common equity
      capitalization of 52 percent).

      The parties recognize that the Commission reserves the authority to act on
      the  level  of  Con  Edison's  base  electricity  rates  pursuant  to  the
      provisions of the Public Service Law should it determine that  intervening
      circumstances  have  such a  substantial  impact  upon  the  range  of Con
      Edison's earnings levels or equity costs envisioned by the agreement as to
      render  the  Company's  electric  rates  unjust  or  unreasonable  for the
      provision of safe and adequate service.

      Disposition of Strandable Costs


13.   Strandable costs are "those costs incurred by utilities that may become
      unrecoverable during the transition from regulation to a competitive
      market for electricity."  May 20, 1996 order, p. 46.  Con Edison's
      October 1, 1996 plan estimated its strandable electric generation costs
      to range from $4.7 billion to $6.2 billion, with about 60 percent of
      such costs attributable to costs of required power purchase contracts
      between Con Edison and non-utility generators ("NUGs").  The parties
      have not agreed to any estimate of strandable costs but as part of the
      rate plan have agreed on the rate treatment to be utilized for such
      costs.

      Con Edison's  October 1, 1996 plan maintained that to date the Company had
      mitigated the ratepayer  impacts of strandable costs  attributable to NUGs
      by $2.2 billion and its other generation costs by additional,  substantial
      amounts.  The parties have agreed to the following  steps toward  reducing
      generation costs under the rate plan:

            (i)   In developing the unbundled tariffs prescribed by Section
                  II.20, the revenue reductions set forth in Section II.5
                  herein will be allocated to the generation component of the
                  applicable PSC No. 9 rates.  These reductions reflect the
                  mitigation of generation-related costs borne by ratepayers
                  in the RY1 through RY5 period while additional mitigation
                  of strandable costs is carried out as prescribed in the
                  subparagraphs below.

            (ii)  During RY1 through RY5, Con Edison will continue to
                  depreciate its generation plant at the rates prescribed by
                  the Case 94-E-0334 settlement agreement.  Con Edison
                  commits, in furtherance of the rate plan, to mitigate
                  strandable costs of its fossil generating units through the
                  application of credits (reductions) to its generation plant
                  balances during the period RY1 through RY5 in a total
                  amount of $350 million above the depreciation accruals
                  authorized by the Case 94-E-0334 settlement agreement.
                  These credits will be recorded as depreciation expense.
                  The specific plant balances to be credited (reduced) will
                  be determined by Con Edison, subject to the Company's
                  commitment to allocate a portion of the $350 million to
                  bring the book value of the Company's steam-electric
                  generating stations (i.e.,  Waterside and 74th Street), to
                                       -----                    
                  a level closer to the



                                       12


                  market value estimated by Con Edison.
                  The parties recognize that absolute precision in
                  furtherance of this objective is impossible and agree that
                  the exercise of reasonable judgment concerning estimation
                  of probable market values will put the Company in
                  compliance with this provision.  Con Edison will record the
                  $350 million depreciation expense in RY1 through RY5 as
                  follows:  $40 million in RY2, $60 million in RY3, $125
                  million in RY4, and $125 million in RY5.  Con Edison will
                  notify Staff of the plant as to which these depreciation
                  expense accruals are to be made under this subparagraph 30
                  days prior to the application of such accruals.

            (iii) Mitigation of strandable costs will also be addressed  through
                  the  application of 25 percent of the Company's  common equity
                  earnings  in excess of 12.9  percent  (calculated  per Section
                  III.18  herein)  against   generation-related  plant  balances
                  during the period prescribed in Section II.18.

            (iv)  NUG contract cost mitigation efforts will continue in the
                  RY1 through RY5 period and thereafter as per Section II.14
                  herein.  As an additional incentive to mitigate NUG costs
                  during the RY1 through RY5 period, the Company will,
                  subject to Section II.14.(i)(c), retain (a) the full
                  reductions in fixed NUG costs during the five-year  period,
                  and (b) thirty percent of reductions in variable NUG costs
                  for a period of eighteen months, resulting from the
                  renegotiation, termination, "buyout" or "buydown" of NUG
                  contracts, exclusive of the financing-related savings
                  resulting from securitization.  The Company will petition
                  the  Commission to defer costs of contract terminations,
                  "buyout" or "buydown" for recovery pursuant to the
                  parameters set forth in Section II.15(ii) herein.  After
                  RY5, the net benefits of any NUG contract renegotiation,
                  termination, "buyout" or "buydown" will be included in the
                  calculation of mitigated amounts as prescribed by Section
                  II.14(i)(a) and, in addition, allocated for ratemaking
                  purposes as follows:  25 percent will be applied to credit
                  (reduce) generation plant balances; 75 percent will be
                  applied directly to rates in a manner to be determined by
                  the Commission.


            (v)   The Company  commits to mitigate the  strandable  costs of its
                  IP2 unit through the  application of credits  (reductions)  to
                  its nuclear  generation  plant balances by $9 million per year
                  in each rate year (RY1  through  RY5)  above the  depreciation
                  accruals   authorized   by  the  Case   94-E-0334   settlement
                  agreement.

            (vi)  Section IV of this agreement requires Con Edison to develop
                  and submit a plan for the divestiture of electric
                  generating plant and prescribes a minimum divestiture
                  commitment by Con Edison.  The Company will



                                       13


                  seek to mitigate strandable costs by developing a divestiture
                  plan that yields the maximum sales or transfer price
                  reasonably achievable under such plan. After-tax gains or
                  losses resulting from the divestiture of generation during the
                  rate plan (or the transfer to an affiliate), inclusive of
                  divestiture costs per Section IV of this agreement, will be
                  deferred on the Company's books of account and interest at
                  the Commission-determined unadjusted deposit rate will be
                  applied to such deferrals.  Following RY5 (March 31, 2002),
                  Con Edison will reconcile the remaining book cost of plant
                  to the "market values" defined by divestiture (including
                  deferred gains or losses) and the balance thereof (positive
                  or negative) will be reflected in the post-rate plan period
                  rates consistent with Section II.15 below.

14.    Consistent  with  the  Commission's  order in the COB  case,  it is the
      objective of the parties to allow the Company a  reasonable  opportunity
      to recover the  above-market  costs of NUG contracts after RY5, while at
      the same time putting  recovery of a portion of such  stranded NUG costs
      at some  reasonable  degree of risk.  Such recovery  would be contingent
      upon the Company's  success in mitigating  these  stranded  costs or, to
      the  extent  stranded  costs  are  not  reduced  or  eliminated  through
      mitigation,   upon  the   implementation   of  the  provisions  of  this
      settlement   agreement  intended  to  carry  out  the  transition  to  a
      competitive electricity market.

      Accordingly,  the  Company  would be at risk for the  disallowance  of the
      lesser of (i) 10 percent of the actual or then estimated (on a net present
      value basis)  above-market costs in each rate year after RY5 of all of the
      Company's  now existing NUG  contracts,  and (ii) a maximum  total of $300
      million (net present  value at the end of RY5),  subject to the  following
      two provisions:

         (i)  The Company will have the following  opportunities to mitigate its
              stranded  costs and thereby  reduce or eliminate the  disallowance
              risk.

              a. if NUG  contract  costs  are  mitigated  at any time  after the
                 beginning of RY1 (e.g., through successful renegotiation of NUG
                 contracts  concluded  after, but not prior to, the beginning of
                 RY1),  the total  reduction  in NUG costs after RY5 (other than
                 the 30  percent  of  mitigated  variable  NUG  costs  that  may
                 continue to be retained  by the Company  after RY5  pursuant to
                 Section  13.iv)  and 100  percent  of  reductions  in NUG costs
                 subject to flow  through to  ratepayers  during RY1 through RY5
                 resulting from such  mitigation  will offset the amount at risk
                 for disallowance; provided, however, that if the stranded costs
                 under a NUG contract are mitigated not for reasons  directly or
                 indirectly related to the Company's efforts (including contract
                 enforcement and administration), but for totally unforeseen and
                 unnatural  reasons (i.e.,  the  destruction  of a plant),  such
                 stranded  costs would be  considered  fully  mitigated  but the
                 resulting  savings  would not  offset the  remaining  amount at
                 risk.  All the  Company's  NUG  contracts  would  be  potential
                 sources of mitigation and NUG costs will be treated as a total,
                 so that  mitigation  of an



                                       14


                 amount  greater  than 10  percent of
                 above-market  costs in one contract  would be credited  against
                 other  stranded NUG costs in  determining  the reduction in the
                 Company's allowance risk.

              b. to the extent payments under NUG contracts are securitized, the
                 financing-related  savings are  expected to flow to  ratepayers
                 and would not offset any amounts at risk for  disallowance.  If
                 as part of securitization  the Company  negotiates a buydown of
                 the  contract  or the NUG  contract  is  terminated  through  a
                 buy-out, all above-market  contract costs, even if securitized,
                 would continue to be considered stranded costs for the purposes
                 of determining the Company's 10 percent  disallowance risk, and
                 any  reductions in total  expected  payments under the contract
                 negotiated  by the Company would offset any amounts at risk for
                 disallowance.

              c. this settlement  agreement (Section II.13.iv) provides that the
                 Company will retain the benefit of all  mitigation in fixed NUG
                 costs  achieved  during  RY1  through  RY5  and 30  percent  of
                 mitigation  in variable NUG costs  achieved  during RY1 through
                 RY5 for a period of 18 months. The Company will have the option
                 to defer  any and all  such  savings,  in  order to apply  them
                 towards  disallowed NUG costs;  provided,  however,  that if it
                 later  develops  that the  Company  is able to  achieve  the 10
                 percent  mitigation  target  without  applying  those  deferred
                 savings  toward  mitigation,  it may then  credit the  deferred
                 savings to income.

              d. the   settlement   agreement   provides  for   mitigation   and
                 divestiture  of the  Company's  fossil  generating  units.  Ten
                 percent of the proceeds of divestiture  (sale to third parties)
                 of such  generation  will be applied as an offset to the amount
                 of NUG costs at risk under this paragraph.

              e. the Company would have the option of absorbing  any  ratemaking
                 disallowance after RY5 in a lump-sum amount, with the amount of
                 such  absorption  (only  insofar as it relates to estimation of
                 stranded  costs  remaining)  to be subject to the  Commission's
                 approval.  The Company would  thereafter be permitted to retain
                 all savings  resulting from later mitigation  efforts up to the
                 lump sum amount absorbed by the Company.

               (ii) For any  amounts  of  stranded  costs  at risk  that are not
              mitigated or eliminated  through the mitigation  efforts described
              in the previous subparagraph (i), the Company will nevertheless be
              permitted a reasonable  opportunity to recover such amounts if the
              Company  makes good faith  efforts in  implementing  provisions of
              this agreement  leading to  development of a competitive  electric
              market  in the  service  area.  The  parties  recognize  that  the
              development  of a  competitive  electric  market  will depend to a
              large extent on developments  outside the Company's  control,  and
              the Commission's  assessment of the Company's efforts will reflect
              this fact.  The Commission  would not disallow an



                                       15


              opportunity  for
              recovery  provided  that  the  Company's  efforts  were  otherwise
              sufficient.  The Commission will consider the Company's actions in
              the  following  broad areas:  divestiture,  retail  access,  price
              levels  and NUG  mitigation.  Each of these  broad  areas  contain
              efforts  that  the  Commission  will  consider  in  assessing  the
              Company's success. For divestiture, the Company's development of a
              comprehensive  divestiture  plan,  the pace and  magnitude  of the
              divestiture process,  the successful  development of a competitive
              electric  market,  including  development  of the ISO, will all be
              considered.  For retail access,  the Company's  implementation  of
              retail  access in relation  to the targets set for retail  access,
              including timing  regarding the scope and  participation in retail
              access,  and  the  Company's   interactions  with  energy  service
              companies  and marketers in the program will be considered as well
              as the extent to which the  Company  facilitates  the  substantial
              construction of new generation capacity.  The Company's success in
              implementing the affiliate  relationship  rules of this agreement,
              without substantial verified (i.e.,  substantiated)  complaints of
              non-compliance will also be considered. Concerning NUG mitigation,
              in  addition  to  the  quantifiable  mitigation  addressed  in the
              preceding   subparagraph  (i),  the  Company's   participation  in
              available programs to securitize  above-market  payments will also
              be considered.  Regarding price levels, the level of base electric
              rates  in  the   post-RY5   period   will  be   considered;   this
              consideration will reflect experienced inflation since RY1 and the
              trend in prices  charged by  similarly-situated  utilities.  These
              activities  are  illustrative  of the  steps to be  taken  towards
              development of the market, and it is not the parties'  expectation
              that the actions or lack thereof  taken as to any single action or
              category  would mean that full  allowance  or  disallowance  would
              result;  the intent  will be to  reasonably  assess the  Company's
              actions  leading to the  transition  on a  generalized  or overall
              basis.

15.   The parties recognize the extensive litigation already conducted and
      related policy differences over the recovery of strandable costs.  In
      light of the numerous factors and trade-offs reflected in this
      agreement, and subject to the limitation prescribed by Section II.14
      herein, the parties agree that, subject to approval of this settlement
      agreement by the Commission, Con Edison will be given a reasonable
      opportunity to recover stranded and strandable costs remaining at March
      31, 2002.  Parameters under which recovery will be carried out
      including, where applicable, the time period during which this
      reasonable opportunity is to be afforded, are as follows:

       (i)  charges  for all  customers  served  under the PSC No. 9 and  retail
            access tariffs (and for PASNY No. 4 and EDDS customers to the extent
            set forth in Section  II.31  herein) will  reflect a  non-bypassable
            charge   for   the   continued    collection   of   generation   and
            generation-related  costs as set forth in Sections  II.29 and III.7,
            11 herein.

      


                                       16


      (ii)  the recovery period of NUG termination, "buy-out" or "buy-down"
            costs, if securitized, will be determined by the Commission at
            the time of securitization, but such recovery is expected to
            match the life of the securitized bonds.  The recovery period of
            non-securitized NUG termination, "buy-out" or a "buy-down"
            costs, if any, will also be determined by the Commission, but
            not exceed the life of the specific contract.   The recovery
            period of purchases made under NUG contracts will be the life of
            the contract.

      (iii) for  IP2,  in the  absence  of  securitization,  the  unit's  costs,
            including  above-market costs, and  decommissioning  expense for IP2
            and the retired  Indian Point No. 1 unit,  will be recovered  over a
            period no longer than the end of the unit's license term in the year
            2013.  Reconciliation of estimated and actual  decommissioning costs
            may be reflected in rates after 2013.

     (iv)    for fossil generation,  in the absence of securitization,  stranded
             costs  remaining  after RY5 will be recovered  over a period not to
             exceed the 10-year period ending March 31, 2012.

      (v)    recovery of Con Edison's other stranded costs will be over a period
             to be determined by the Commission.

      (vi)  the Company will petition the Appellate Division of the
            Supreme Court for permission to withdraw its December 24, 1996
            appeal in Energy Ass'n of N.Y.S. v. Public Service Commission,
                      -----------------------   -------------------------
            Albany County Index No. 5830-96, with prejudice, following
            final Commission approval of this agreement (i.e., when any
                                                         ----
            appeals from such approval are exhausted or the time to appeal
            has expired).  Until this petition is granted, the Company
            will discontinue its appeal to the extent it is able to do so
            without forfeiting the right to appeal.

      Comprehensive Nature of Settlement Agreement


16. The  foregoing  reflects the  parties'  efforts to resolve  complex  revenue
requirement and rate level issues in this proceeding.  In this  proceeding,  the
issues involved difficult  questions arising from stranded cost recovery as well
as  issues  arising  from  the  corporate  restructuring  under  review  in this
proceeding, including the issue of the need for and measurement of an imputation
of "royalties."  In developing the rate plan, the parties  intended to develop a
comprehensive  plan that  accounts for both typical  revenue-requirement  issues
such as  expected  productivity  achievement  as well  as for  claims  regarding
stranded cost  recoverability  and the payment of "royalties."  The rate plan is
intended as a permanent and  comprehensive  resolution of the Company's  revenue
requirement  in RY1 through  RY5, of the  principles  under which  stranded  and
strandable  costs will be  recovered  after RY5  (pursuant  to Section  II.13-15
herein),  and of claims that the  Company  should  record as revenues  royalties
collected or imputed from its parent, affiliates or subsidiaries both before and
after RY5 beyond any amounts specifically required by this settlement agreement.
The plan resolves  these issues on a basis that will allow the Company to remain
under the Statement of Financial Accounting Standards No. 71 requiring regulated
companies to follow cost-based ratemaking.



                                       17


      Reporting


17.  The  Company  will make  available  to  Staff,  for its  review,  unbundled
financial  statements in the first quarter of 1997. The Company will also report
to the Commission Staff, no later than 90 days after the close of each rate year
(RY1  through  RY5),   the  utility   common  equity   earnings  and  supporting
computations for the preceding rate year.

      Calculation and Disposition of Certain Earnings

18. The  Company  will  calculate  its rate of return on common  equity  capital
following RY1 through RY5. The Company will  allocate the revenue  equivalent of
its earnings in excess of 12.9  percent in any rate year as follows:  50 percent
will be retained by the investors;  25 percent will be applied to the benefit of
utility  customers  through rate  reductions  or as otherwise  determined by the
Commission; and 25 percent will be applied to the Company's generation plant, as
depreciation  expense, to reduce plant balances.  The earnings for any rate year
will be  calculated  on a per books basis  excluding  the effects of  incentives
prescribed by Section  II.11(ii),  13(iv) and 32 herein.  In calculating  earned
return to  determine if sharing is to be  implemented,  the Company will include
amounts by which its earnings fell below 11.9 percent  (excluding the effects of
incentives)  in any  earlier  rate year  (RY1  through  RY4) of this  settlement
agreement. The Company will not be subject to the earnings sharing prescribed by
this  paragraph  beginning with the first rate year (i) in which the Company has
divested (sold to third parties) 50 percent or more of the in-City fossil plants
(measured in megawatt-rated capacity) owned by Con Edison as of the date of this
settlement  agreement (net of later  re-ratings or retirements) or (ii) in which
15 percent or more of the service area peak load  (excluding load served by NYPA
as of the date of this agreement) is supplied by other than Con Edison.


Rate Design and Revenue Allocation

19.   Case 94-E-0334 Rate Design Changes


      The following rate design changes to the PSC No. 9 rates prescribed by the
Case 94-E-0334  settlement  agreement will be implemented  beginning on April 1,
1997 (or the date the  Company's  tariffs  implementing  RY1 of this  settlement
agreement become effective, if later):

      (i)   The Case 94-E-0334 settlement agreement (Appendix D, p. 7),
            prescribes that the customer charge in PSC No. 9 for SC Nos. 1
            (residential and religious), 2 (small -general) and 7
            (residential and religious-heating) will be gradually increased
            over a seven-year period. The annual increase of $0.57 per month
            is to take effect each April 1 through RY5, with the increase in
            revenues due to the customer-charge increase deducted from the
            energy charge revenue for the affected service classification.
            This Case 94-E-0334 settlement provision will continue in effect
            under the rate plan.



                                       18


      (ii)  The Case 94-E-0334 settlement agreement (Appendix D, pp. 6-7)
            prescribes that the energy charges in PSC No. 9 for SC No. 4-Rate
            II (commercial and industrial-redistribution), 8-Rate II
            (multiple dwellings-redistribution), 9-Rate II (general-large),
            12-Rate II, (multiple dwelling space heating) and 13 (bulk
            power-high tension-housing developments) will be reduced on April
            1, 1997 and on April 1, 1998 (if rates were changed at that time
            pursuant to the Case 94-E-0334 settlement agreement).  The
            reduction in the energy charge would equal 25 percent of the
            difference between the level of marginal energy costs adopted in
            Case 94-E-0334 and the level of the energy charge for the
            affected classes in effect at the time of the Case 94-E-0334
            settlement agreement.  The reduction in revenues associated with
            this change would be offset in full by adjusting the generation,
            transmission and distribution charges in the affected
            classifications.  This Case 94-E-0334 settlement provision will
            be implemented under the rate plan by implementing the scheduled
            reduction in energy charges effective April 1, 1997 and April 1,
            1998, offsetting the associated revenue reduction in full by
            increases to the transmission and distribution charges in the
            affected classification.


20.   Unbundled Tariffs


      Con Edison's  October 1, 1996 plan included sample  unbundled  tariffs for
two of its  PSC No.  9  service  classifications  (SC No.  1 -  residential  and
religious and SC No. 9 -  general-large).  The sample tariffs  disaggregate  the
major  cost  components  of  Con  Edison's  electric  system  (i.e.,  generation
capacity, energy, transmission and distribution) to provide improved information
about the cost  structure  on which the rates are  based.  The  sample PSC No. 9
tariffs  would not permit  customers  to  purchase  individual  elements  of the
Company's major cost components. The Company agrees to continue with the process
of  reformatting  its PSC No. 9 rate  schedule  to reflect  the  October 1, 1996
approach to  "unbundling" or  "disaggregating"  major cost components to provide
improved information to consumers and, on Commission approval of this settlement
agreement, will file such unbundled rates for PSC No. 9 rate schedule by January
15, 1998 for all classes to become effective April 1, 1998:

          (i) The unbundled PSC No. 9 rate components will be based on the "1994
            Electric  Embedded  Cost of  Service  Study"  ("1994  embedded  cost
            study") that the Company  provided to the parties in this proceeding
            and  will  include   generation,   transmission   and   distribution
            components,  and per Section II.26 of this settlement  agreement,  a
            system   benefits   component.   The   unbundled   tariffs  will  be
            revenue-neutral on a class-by-class basis.

          (ii) The  unbundling  process  begun in this  settlement  agreement is
            expected  ultimately  to lead to  customers  having  the  ability to
            choose  from  among the  unbundled  cost  elements  set forth in the
            tariffs. The Commission will not be precluded from implementing such
            service unbundling following approval of this settlement



                                       19


            agreement.
            It is the  intention  of the  parties  that any such  unbundling  be
            consistent  with the principle that the purchasers of such unbundled
            services not be subsidized by the Company or its other customers and
            that  stranded  costs  resulting  from such  unbundling be allocated
            consistent with this no-subsidy principle.


21.   Residential Time-of-Use Rates



      There currently  exists a mandatory TOU  (time-of-use)  rate for large-use
residential customers (SC Nos. 1 and 7). The parties agree that the provision of
TOU service will be voluntary beginning in October 1997. Before August 31, 1997,
the  Company  will  inform  mandatory  TOU  customers  that  commencing  on  the
anniversary date they first received mandatory TOU service,  they will be billed
on the conventional  rate or, if the customer so requests,  on the voluntary TOU
rate. The Company will recover the resulting  revenue  shortfalls either through
rate adjustment when shortfalls are experienced or through deferred  accounting,
but the  amounts  to be  recovered  will be  reduced  by the  amount of the late
payment charge revenue recovered per Appendix A, Section 2.v herein.


22.   Industrial Employment Growth


      The  Company  will make  provision  in SC No. 4 -Rate II  (commercial  and
industrial - redistribution)  and SC No. 9 - Rate II (general - large) providing
"industrial   employment  growth"  credits,   to  industrial   customers  served
thereunder.  The term  "industrial  customers" to determine  eligibility for the
credits  will  include  any  mandatory  SC No.  4 - Rate II or SC No.  9 Rate II
account,  other  than  governmental  customers,  where 75 percent or more of the
account's electric usage is used directly for manufacturing,  i.e., the assembly
of goods to create a new product,  the  processing,  fabrication or packaging of
goods, including biotechnology products, electronic products and recycling; and,
research and development by customers  having greater than 2,000 workers engaged
in  research  and  development  in  the  Con  Edison  service  area.  Industrial
employment  growth  credits  will not be  available  to  retail  establishments,
restaurants,   hotels,  hospitals,   schools,  cultural,   religious  or  public
institutions  or customers  engaged in provision of services  such as financial,
insurance,  real estate,  legal or similar  services.  Customers  taking service
under Rider I (Area Development Rate), Rider J (Business  Incentive Rate), Rider
L (Economic  Development  Zones) or Rider O (Curtailable  Electric Service) will
not be eligible for industrial employment growth credits.  Customers will not be
eligible for industrial  employment growth credits until written application for
such credits is made by the customer and accepted by the Company. The industrial
employment growth credits will, for each customer served thereunder,  constitute
the   equivalent  of  a  twenty-five   percent   reduction,   exclusive  of  any
separately-stated  system benefits charge  implemented per Section II.26 herein,
from the applicable rates and charges under Rate II of SC Nos. 4 and 9 in effect
as of the date of this settlement agreement.  The Company will provide notice of
the availability of this rate to all customers currently served under Rate II of
SC 4 and 9.



                                       20


      The annual revenue  reductions  reflected in Section II.5 herein for large
industrial  customers reflect certain  assumptions about the numbers of existing
PSC No. 9 customers  eligible for this program.  If the actual revenue shortfall
for this  program  (i.e.,  the  difference  in  revenues  calculated  under  the
applicable rates and charges under Rate II of SC Nos. 4 or 9 in effect as of the
date of this settlement agreement and under the applicable industrial employment
growth  credits)  in any rate year (RY 1 through  RY5)  varies  from the revenue
reduction  level  attributable  to this  program per Section  II.5  herein,  the
variation  will be deferred  and  reflected in the  Statement of Case  96-E-0897
Adjustments per Section II.11 herein.  In calculating  revenue  variations under
this subparagraph,  the Company will exclude revenue variations due to increases
in load after a customer  commences  service  under  this  program,  and it will
exclude the entire load of customers commencing  manufacturing operations in the
service territory after the date of this settlement agreement.


23.   Low Income Rate Program


      In its Opinion and Order Approving  Settlement in Case 95-E-0964  (Opinion
No. 96-6, dated March 27, 1996), the Commission approved a settlement  agreement
establishing  a low-income  rate program.  The program  included a targeted rate
component  under which the customer  charge of certain SC Nos. 1 and 7 customers
would  remain  fixed at $5.00 per month  through  March 31, 1999 (id. at 2). The
parties  agree to continue the rate  component of the  low-income  settlement in
effect through RY5, following the same revenue-neutrality  provisions applicable
to the low-income  settlement  approved in Opinion No. 96-6, and to continue the
energy efficiency component of the program through October 1999.

24.   RY1 Through RY5 Tariffs Implementing This Agreement


             Following  approval  of  this  agreement,  the  Company  will  file
individual  tariff leaves to cover the rate changes  required by this agreement,
including  changes  that will become  effective  in RY2 through RY5 (the bundled
rates filed by the Company will be superseded by the unbundled rates to be filed
by January 15, 1998,  per Section II.20 herein on April 1, 1998).  If additional
changes  (i.e.,  changes  not  required  but  nevertheless   permitted  by  this
agreement)  become  effective  in the RY1 through RY5 period,  the Company  will
conform the rate leaves already on file for the remaining rate years in order to
be  consistent  with the rate plan and with such  unanticipated  but  authorized
further  changes.  The rate leaves in effect as of March 31, 2002 will remain in
effect until changed by order of the Commission or by operation of law.


25.   Rate Design Flexibility


      During the term of the agreement,  the Company will have the right to seek
to  change  rates in a  revenue-neutral  manner as set  forth  herein.  All rate
changes will be filed with the


                                       21


Commission and be subject to its approval and be
consistent with the terms of the settlement  agreement.  The changes that may be
proposed pursuant to this provision are as follows:

    -    Reallocation of revenues among customer groups based on changes in the
         cost of service not known or  foreseen  at the time of this  settlement
         agreement
    -    Additions, deletions or other changes to rate blocks or seasonal
         differentials
    -    Segmentation of service classes according to consumption levels,
         load factors, and end-uses
    -    Reallocation of revenues within a class between demand, energy and
         customer charges, as applicable
    -    De minimis rate changes.

            Where the  Company is to propose  more than one rate  change to take
effect at  approximately  the same time,  it will,  to the  extent  practicable,
combine such proposals in a single filing with the Commission. Nothing herein is
intended to preclude the Commission  from  initiating the rate change  proposals
covered by this paragraph.  Nor is the Company precluded from proposing flexible
rate  programs  pursuant  to the  Commission's  Opinion  and  Order  Authorizing
Flexible  Rates,  Opinion No. 94-15,  issued July 11, 1994, and the May 20, 1996
order.


26.   System Benefits Charge Program


      The Commission's May 20, 1996 order (p. 90) stated that "[c]osts  required
to be spent on necessary  environmental  and other public  policy  programs that
would not  otherwise  be  recovered in a  competitive  market will  generally be
recovered  by  a  non-bypassable   system  benefits  charge."  The  expenditures
reflected in the SBC are for research and development (R&D),  energy efficiency,
environmental protection,  and low income programs that are required or approved
by the  Commission  to be funded by the SBC. In this  settlement  agreement  and
subject to prospective  modification by the Commission  following  resolution of
the generic system benefits charge  proceeding  (Case  94-E-0952,  et al., Order
Modifying  Procedure,  issued February 6, 1997),  expenditure  levels for system
benefits charge programs will initially be covered in base rates,  but they will
be  non-bypassable  in any event.  Appendix B shows the costs of the programs in
base  rates.  Staff  and the  Company  support  the  spending  levels  for these
activities set forth in Appendix B through  October 1999  (approximating  1 mill
per kwhr).

       R&D:             R&D  programs   that  Con  Edison  is  required  by  law
                        (including   orders  of  the   Commission)   to  conduct
                        (excluding  NYSERDA  contributions) or that would likely
                        not  be  funded  by  the   Company   in  a   competitive
                        environment will be recovered in the SBC.

    Energy efficiency:  The Company's  expenditures for demand side
                        management   ("DSM")  as  shown  in  Appendix  B  are  a
                        reasonable   level  through  October  1999.  New  energy
                        efficiency  programs that the Company



                                       22


                      is required by law
                      (including order of the Commission) to conduct in excess
                      of the  expenditure  levels  shown in Appendix B will be
                      recovered  as  a  surcharge  in  the  SBC.   Unless  the
                      Commission  otherwise  directs,  energy efficiency funds
                      collected  by Con  Edison  will be  administered  by Con
                      Edison and will be spent on energy  efficiency  measures
                      in its service area.

      Low income:     The costs of any new, existing  or expanded low income
                      programs, including low-income energy efficiency
                      programs, approved or directed by the Commission will be
                      recovered in the system benefits charge.

     Environmental
     Protection:      The costs of environmental protection programs, as deemed
                      necessary by the Commission, that are not likely to be
                      carried out in a competitive market, including programs
                      designed to mitigate environmental impacts of electric
                      industry restructuring.

      Mechanism:      Costs of programs ordered by the Commission in excess
                      of the amounts shown in Appendix B will be recovered
                      through a non-bypassable SBC surcharge.  The SBC
                      formula will be set forth in all rate schedules (PSC
                      No. 9, PASNY No. 4, EDDS and retail access).  The
                      Company may unbundle the current SBC expenditures
                      from base rates in a revenue-neutral manner in its
                      January 15, 1998 filing pursuant to Section II.20
                      herein.  The charge will not be subject to the rate
                      increase limitation established in Section II.7 of
                      this settlement agreement and will be set to cover
                      costs when spending levels are re-set.

                      The  Company's  expenditures  for  R&D  and  for  energy
                      efficiency,  other than those  included in the SBC, will
                      be determined  by the Company in its internal  budgeting
                      process,  and  beginning  with the calendar year 1998, a
                      demand side management plan will no longer be filed with
                      the Commission.  Con Edison will be authorized to pursue
                      both   efficient   sales  growth  and  sales   reduction
                      initiatives   utilizing   customer-focused   and   other
                      incentives.   The  NYPA  (PASNY  No.  4  and  EDDS)  SBC
                      component will exclude generation-related costs.


27.   Miscellaneous Rate Provisions


      Con  Edison's  October  1, 1996 plan  contained  rate  proposals  that the
Company  maintained  were  needed  in  order to  facilitate  the  transition  to
competition.   Rate   changes  to

                                       23


implement  a  minimum   monthly   charge  for
demand-billed customers will be implemented effective April 1, 1998, as provided
in Appendix A and rate changes to reflect the unbundling of certain charges will
be implemented for Con Edison  effective as prescribed in Appendix A hereto.  In
addition,  the Company's  October 2, 1996 filing to implement the third-stage of
the Case 94-E-0334  settlement  agreement contained proposals to institute a new
real time  pricing  program;  to modify  eligibility  rules in the  provision of
service under Rider J (Business  Incentive  Rate);  and to clarify the PSC No. 9
tariff in respect to demand meter installation  procedures and the correction of
a  cross-reference  in the tariff.  These Case  94-E-0334 rate proposals will be
implemented  effective as prescribed in Appendix A hereto.  The parties agree to
support  in  principle  the Con Edison  modified  high-tension  proposal  and DC
service  proposals,  both  contained  in Con  Edison's  October 1, 1996 plan and
described  in Appendix C hereto,  when filed  after the date of this  settlement
agreement.

      The Company will explore the  development of a hedging  program to be made
available  to   full-service   customers   interested   in  a  full  or  partial
non-adjustable  fixed rate for  electric  service.  The Company  will report the
results  of its  review and submit  any  proposals  resulting  therefrom  to the
Commission by November 15, 1997.

28.   Economic Development Rate Programs


      The parties agree that electric rates can be useful in promoting  economic
development,  and they have  reflected  this principle in the allocation of rate
reductions  in the rate plan.  Con Edison's  tariffs in effect as of the date of
this  settlement   agreement   provide   economic-development   rate  reductions
principally  pursuant  to  two  location-specific   programs,  Rider  I  -  Area
Development  ("ADR") and Rider L Rate  Available  Under New York State  Economic
Development  Zones Act  ("EDZ") and one  service-area  wide  program,  Rider J -
Business  Incentive Rate ("BIR").  The parties have agreed in the context of the
rate  plan  to  institute  a  phase-out  of the  application  of  the  Company's
location-specific rate programs (Riders I and L), and, accordingly, applications
under those programs will not be accepted after March 31, 1997. The Company will
continue  to  consider,  and will  implement  on a  revenue-neutral  basis,  new
economic  development  programs developed during the rate plan. The ADR, EDZ and
BIR rate programs will be adjusted to provide  customers  approximately the same
level of bill  reductions  provided  under  these  riders as of the date of this
agreement using a combination of the RY1 through RY5 bill reductions provided to
all   similarly-situated   business   customers   under   this   agreement   and
rider-specific bill reductions.


29.   Retail Access Tariff and Retail Access Regulation


      The  Company  will  prepare  and file  retail  access  tariffs in order to
implement  the retail  access  program set forth in Section III herein,  and the
provisions  of Section III will be considered to be part of this "rate plan." At
the outset,  the retail  access  tariffs will include the same number of service
classifications,  with the same applicability rules for each class, adapted to a
retail



                                       24


access program,  as set forth in PSC No. 9 for the Company's  retail sale
of  electricity,  but Staff and the  Company  will  confer on ways to reduce the
number of service  classifications and rate programs applicable under the retail
access tariffs.  Pending such effort, the retail access tariffs will be prepared
following  the same  methods  and format  utilized in the sample  retail  access
tariffs  included  in  Appendix 9 to the  Company's  October  1, 1996 plan.  The
following  charges in retail access  tariffs will equal the charges set forth in
the corresponding PSC No. 9 tariff:  customer charge,  distribution  charge, and
transmission  charge.  As set forth in Section III, the  transportation/delivery
component of the retail  access charge will be set to collect the portion of the
generation  demand and energy charges set forth in the  corresponding  PSC No. 9
tariff that are not avoided by the  provision of power and energy via the retail
access tariffs. Therefore, the  transportation/delivery  component of the retail
access tariff will include the  generation  and energy charges in effect for the
corresponding  PSC No.  9  service  classification,  subject  to  adjustment  as
prescribed in Section III herein.

      The Company's  retail access tariff will be filed with the  Commission and
cover all  components  of the retail  access  tariff  described  herein.  If the
Federal  Energy   Regulatory   Commission   ("FERC")  should  require  that  the
transmission  or other  component of retail access service be provided under the
Company's "open access" tariff under FERC Order 888 or another FERC tariff,  the
Company and Staff will  cooperate in the  development  of retail access  tariffs
that carry out the commitments of this settlement agreement. Adjustments will be
made in the rates remaining  subject to the Commission's  jurisdiction to offset
any differences  (positive or negative) in rate levels for retail access service
that  are  set by  FERC  compared  to the  rates  provided  by  this  settlement
agreement.

      Any generator  supplying  power on an  interstate  radial that it paid for
directly  and  for  which  it  continues  to  directly  or  indirectly  pay  the
maintenance will not be deemed to be taking transmission  service for the use of
that line,  regardless  of the line's  ownership.  Nor will use of such a radial
line incur any charges of any type for transmission service (e.g.,  transmission
service charges).


30.   Regulatory Reform, Customer Operations
      Procedures, and Classification of Facilities


            (i)   Legislative action for the prospective repeal of the
                  mandatory purchase requirements of the Public Utility
                  Regulatory Policies Act of 1978 ("PURPA") (16 USCss.824a-3)
                  and Public Service Law Section 66-c (McKinney) is expected
                  as the transition to competition in the electric utility
                  industry is implemented.  Implementation of these
                  requirements is a matter of Commission judgment.  Case
                  93-E-0912, Order Denying Petitions For Rehearing, issued
                             -------------------------------------
                  December 27, 1994, pp. 2-4.  Therefore, pending repeal of
                  these requirements, and subject to Commission approval of
                  this settlement agreement, Con Edison will be permitted to
                  condition payments under mandated contracts requiring fixed
                  payments for a period longer than one year upon recovery of
                  such payments in rates.



                                       25


            (ii)  Con Edison  will not be  responsible  for the  performance  of
                  energy  service  companies  ("ESCOs").  Con Edison's ESCO will
                  have the same duties (licensing  requirements and load serving
                  entity ["LSE"] duties) as other ESCOs.

            (iii) To facilitate  the Company's  operations  under the rate plan,
                  provisions  of Part 11, Part 13, Part 140,  and Part 273 of 16
                  N.Y.C.R.R.  and the  requirements  for a plain  language  bill
                  format adopted in Case 28080, Order Requiring Gas and Electric
                  Utilities To File Revised Billing Formats (Oct. 31, 1985), are
                  waived to the extent that any such provisions are inconsistent
                  with the Company's ability to:

                   a.  institute non-discriminatory procedures which require
                      an applicant to provide reasonable proof of the
                      applicant's identity as a condition of service;
                   b.  modify its bill content and format in response to
                      industry restructuring; provided, however,  the
                      Company's bills will contain the following:

                      -   an explanation of how bills may be paid
                      -   total charges due
                      -   due date
                      -   unit price of energy consumed or other appropriate
                            itemization of charges (including sales taxes and
                            other informative tax itemization)
                      -   complete name and address of customer
                      -   unique account number or customer number assigned
                            to the customer
                      -   meter readings
                      -   period of time associated with each product or service
                      -   name of entity rendering bill
                      -   local or toll-free telephone number customers may
                            call with inquiries

                   c.  include non-tariffed items in a bill; provided,
                      however, that customer payments are credited first to
                      tariffed items and service cannot be terminated for
                      failure to pay non-tariffed items.

            (iv)  Con Edison will be permitted to disclose residential and
                  non-residential customers' current payment status
                  information to other service providers to the extent such
                  information is limited to: whether or not a deposit could
                  be requested from the customers by Con Edison due to
                  delinquency, as defined in 16 NYCRRss.11.12(d)(2) or in 16
                  NYCRRss.13.1(b)(13), or for any reason provided in 16 NYCRR
                  ss.13.7(a)(1); whether or not a customer could be denied
                  service by Con Edison due to unpaid bills on an existing or
                  prior account; or, whether a customer's service could be
                  terminated by Con Edison, provided that:




                                       26


                    -    such  information  is  to be  used  by  other  service
                         providers only for the purposes of determining  whether
                         unregulated  energy  services  will be  provided to the
                         customer, whether a deposit will be collected from such
                         customer,   or  for  other  purposes  approved  by  the
                         Commission;
                    -    ownership of the data remains with Con Edison; and
                    -    such information request is made by a service
                         provider in response  to a bona fide  request  from the
                         customer to the service  provider for electric  service
                         or with other customer consent.

            Changes  to  Parts  11 and 13 of the  Commission's  regulations  are
            expected  to be made.  If  changes  are not made,  the  Company  may
            petition for further waiver of such rules.

      (v)   The Company  will be permitted  to accept  credit card  payments for
            utility service,  provided,  however,  that any costs imposed on Con
            Edison  associated with the receipt of payment by credit card are to
            be considered among the general costs of doing business and will not
            be a separate  additional charge to the customers whose payments are
            made by credit card.

      (vi)  In its May 20, 1996 order (p. 73), the Commission expected
            "filings by each utility" to it and subsequently to FERC "to
            distinguish and classify transmission and distribution
            facilities."  Con Edison's 138 kV feeders, which radially supply
            the area substations, are currently classified as transmission
            facilities in the Company's records.  However, these area
            substations supply only local distribution load within the
            Company's service area.  Therefore, these feeders, along with
            ancillary equipment, will be reclassified as distribution
            facilities following approval thereof by the Commission and the
            FERC.  Staff currently supports the Company's position and
            planned application to FERC.

31.   NYPA


      (i)   Revenue Deficiency Under the 1994 Cost-of-Service Study


Con  Edison's  1994  embedded  cost study  indicates  that the rates and charges
applicable to the PASNY No. 4 rate  schedule  should be increased by $22 million
annually in order to bring the revenue contribution  provided by this service to
the overall  average  return  (consistent  with the tolerance  band) for the Con
Edison system. The third year of the Case 94-E-0334  settlement  agreement (App.
D, p. 3),  provides for a $9 million  annual  increase in NYPA's  revenues  from
delivery service to take effect beginning April 1, 1997.  Implementation  of the
Case 94-E-0334 increase,  which will be recovered by Con Edison, will reduce the
indicated  revenue  deficiency  to  $13  million  annually.   This  $13  million
deficiency  is 



                                       27


addressed  in the  Memorandum  of  Agreement on 25 Cycle  Service
attached hereto as Appendix D.

      (ii)  In-City Generation Capacity


            Section  III  of  this   settlement   agreement   provides  for  the
            institution  of a retail access  program for Con Edison that,  among
            other   things,   will  allow   load   serving   entities   ("LSEs")
            participating  in Con  Edison's  retail  access  program  to  supply
            electricity to retail access  customers  subject to limitations  set
            forth in Section III.  Generally,  Section III provides  that at the
            inception of the retail access  program,  pending the point at which
            different  requirements  are  prescribed  by an  Independent  System
            Operator/New  York  State  Reliability  Council  or other  successor
            entity to the New York Power Pool established to maintain state-wide
            reliability  ("ISO"),  LSEs will be permitted  (but not required) to
            supply  generation  capacity  from  sources  other  than Con  Edison
            subject to  limitations  related to locational  generation  capacity
            requirements. For NYPA service delivered by Con Edison via the PASNY
            No. 4 and EDDS tariffs to customers  served by NYPA as of October 1,
            1996,  NYPA will not be subject to  specific  locational  generation
            capacity requirements (other than those to which NYPA may be subject
            pursuant to  currently-existing  agreements)  until local generation
            capacity requirements are established by an ISO. Additional accounts
            instituted after October 1, 1996 by a NYPA customer served under the
            PASNY No. 4 tariff as of that date  (other  than  non-government-use
            accounts and accounts transferred to the PASNY No. 4 tariff from the
            PSC No. 9 tariff,  EDDS tariff or retail access  tariff) will not be
            deemed to be  customers  as to which  service was  instituted  after
            October  1, 1996 under this  subparagraph.  Locational  requirements
            applicable to LSEs will be applicable to any new customers that NYPA
            seeks to serve under the PASNY No. 4 or EDDS tariffs.  If and to the
            extent  NYPA is  required  to comply  with  locational  requirements
            established  by an ISO,  and Con Edison  sells  capacity  to NYPA in
            order to allow NYPA to comply with that requirement, Con Edison will
            credit the fuel  adjustment  with the net benefits of such sales and
            not  retain  any of such  benefits  as an  incentive  under the fuel
            adjustment incentive mechanism.  This difference in the treatment of
            location-based  capacity  requirements  as to  NYPA  assumes  and is
            conditioned on NYPA  maintaining  for its PASNY No. 4 and EDDS loads
            installed  in-City  capacity  at least  equal to the  lesser  of the
            locational  requirement  applicable  to NYPA or the current level of
            822 MW, such amount to be  increased  to account for any increase in
            the capacity of the Poletti unit or any  termination of Con Edison's
            purchase of Poletti capacity.

      (iii) Application of Transportation/Delivery Charge

             The transportation/delivery charge component of Con Edison's retail
            access  tariff,  which will be a wires  charge  applicable  to other
            retail  access  customers  served by Con  Edison,  will not apply to
            service  under the PASNY No. 4 tariff to the extent



                                       28


            of the PASNY No.
            4  load  stated  in   Appendix  E  for  such  year.   Nor  will  the
            transportation/delivery  charge be  applicable  to service under the
            EDDS  tariff  to the  extent of EDDS  load  stated  in  NYPA's  1996
            Resource  Plan  (exhibit F,  column 6) for such year.  If the actual
            weather-normalized  load under either tariff exceeds Appendix E (for
            PASNY No. 4 loads) or the 1996 Resource  Plan (for EDDS loads),  the
            charge will apply to such excess. Customers served under PASNY No. 4
            as of October 1, 1996 are not  expected to be subject to charges for
            stranded  generation  capacity costs  irrespective of the Con Edison
            tariff  under  which  they  receive  service.  For  purposes  of the
            preceding  sentence,  when a customer served under PASNY No. 4 as of
            October 1, 1996 adds additional  accounts to that tariff (other than
            non-government-use  accounts and accounts  transferred  to the PASNY
            No. 4 tariff from the PSC No. 9 tariff, EDDS tariff or retail access
            tariff),  the  additional  account  will be  considered  part of the
            customer's    load    served   as   of   October   1,   1996.    The
            transportation/delivery  charge will be applicable to EDDS customers
            served under any other retail access tariff. Subject to Con Edison's
            recovery of stranded costs as per Section II.13-15 of the settlement
            agreement, the application of any transportation/delivery  charge to
            PASNY's  customers and to PASNY for the period  beginning  after RY5
            will be  determined  by the  Commission  upon  request of any party.
            Nothing  in  this  subparagraph  affects  any  rights  of any  party
            respecting eligibility for NYPA service.

      (iv)  Con Edison  agrees not to  challenge,  either  before NYPA or in the
            courts, the allocation of economic  development power recommended by
            the New York State Economic Development Power Allocation Board dated
            December 17, 1996 (agenda item No. 2) or future  extensions  of such
            allocation, including novations.


32.   Fuel Adjustment Clause

      The incentive  electric fuel  adjustment  prescribed by the Case 94-E-0334
settlement  agreement  will  continue to operate in RY1 through  RY5,  except as
limited below in paragraph vi:

      (i)   the 30-70 Company-customer sharing ratio for variations from
            targets will be retained.

      (ii)  the Company's  overall cap (i.e.,  the maximum  reward or penalty in
            any rate  year,  including  the  effect  of IP2  generation  and its
            replacement)  will continue to be $35.0 million.  The Indian Point 2
            sub-cap  (i.e.,  the maximum  reward or penalty in any rate year for
            the  target  for  the  IP2  capacity   factor  and  its  replacement
            generation) will continue to be $10 million.

       (iii)for each rate year through  RY5,  the  capacity  factor for IP2 will
            continue to be set at an annual  period level of 73.5  percent.  The
            setting of an annual equivalent  capacity factor between  refuelings
            will be in accordance with the Case 94-E-0334



                                       29


            settlement  agreement,
            p.  25.  By April 1,  1997,  the  Company  will  provide  to Staff a
            forecast of the IP2 outage schedule through RY5.

       (iv) the fuel  targets  for RY1 will be based on the PROMOD data base set
            forth in Appendix  F. The parties  will  continue  to  cooperate  in
            exploring  alternate  methods  for  establishing   performance-based
            incentives,  including  market-price-based  indexing  when a visible
            energy market is sufficiently developed.

       (v)  the monthly fuel targets will  continue to be  calculated  using the
            monthly adjustments set forth in Appendix F.

       (vi) the  monthly  fuel  adjustment  will be  credited  with  the  actual
            reliability-related   and  other  unavoidable  energy  costs  to  be
            recovered    from    retail    access    customers    through    the
            transportation/delivery  service  charges as  provided  in  Sections
            III.8.(i) and  III.11.(i).  In addition,  the following cost factors
            will be fixed in base  rates at their  actual  annualized  1996 cost
            levels  and  will be  eliminated  from the  calculation  of the fuel
            adjustment and the reward/penalty provisions:

            -       oil storage and handling charges
            -       fixed gas transportation charges (i.e., local
                    transportation facilities use charges)

            Furthermore,  commencing  April 1, 1997 (or the date of the  tariffs
            filed to implement RY1 in compliance with this settlement  agreement
            following Commission approval,  if later), the Company will allocate
            to base rates the costs, fixed as of the date of this agreement,  of
            diversity  power  (capacity  and  transmission  fixed  charges) from
            Hydro-Quebec  purchased through NYPA, and of the capacity  purchased
            from NYPA's  Indian Point 3 and Poletti  stations,  and the costs of
            the 2.6 cents/kWh fixed "adder"  applicable to 6,600 GWH pursuant to
            the energy purchase agreement with Sithe Energies, Inc. In addition,
            the Company will  recover  through the fuel  adjustment  clause (not
            subject to the  reward/penalty  provisions)  payments  for energy to
            Sithe  (excluding the 2.6 cents/kWh  adder) that would be due absent
            the  discount  to the  buy-back  tariff rate  specified  by contract
            beginning in the sixth year of the contract term (i.e.,  payments at
            the full buy-back tariff rate). The parties will consider continuing
            such recovery  after RY5. The base cost of fuel will be  established
            at 2.2 cents/kilowatthour.

      (vii) the  incentive  applicable  to  contract  renegotiations  with  NUGs
            (including terminations,  buyouts or buydowns) set forth in Sections
            II.13(iv) will be implemented in a manner to carry out its incentive
            objective  irrespective  of any  monthly  adjustments  for such NUGs
            under the preceding paragraph (v). E.g., if the Company successfully
            negotiates  improved  contract  terms  with a NUG  which  lower  the
            Company's  energy  costs,  the  incentive set forth in Section II.13
            (iv) would be implemented  by permitting the Company to collect,  in
            addition to actual energy costs,  thirty  percent of the energy cost
            reductions  through the fuel  adjustment  clause (not subject to the
            reward/penalty provision) for a period of eighteen months.



                                       30


      (viii)when the ISO assumes  control of energy  dispatch in the state,  the
            parties  will  cooperate  in  revising  the  framework  of the  fuel
            adjustment  and  its  incentive  mechanism  as may be  necessary  to
            reflect the spot market  purchase price and other  applicable  costs
            resulting    from   the    establishment    of   the   ISO    (e.g.,
            transmission-related  costs).  Con  Edison  will  submit a  proposed
            revised  framework  within 180 days after the point at which the ISO
            assumes control of energy dispatch in the state.

        (ix)    Nothing in this settlement agreement is intended to affect
            the process or the mechanism for determining the SC No. 11
            Buy-Back rates (energy and capacity) for RY1 and beyond.

       (x)  The Company will  amortize  over RY1 the deferred fuel and purchased
            power costs  resulting from the transfers to base rates specified in
            paragraph (vi) above.  At the end of RY1, the Company will reconcile
            the actual costs and the amounts collected, with appropriate credits
            or charges for  overcollections or  undercollections  at the time of
            this reconciliation.



33.   Customer Service and Electric Service Reliability Incentives


To address the  importance of a  satisfactory  level of service to its customers
over the  term of this  agreement,  a  customer  service  and  electric  service
reliability  incentive program will be implemented.  This mechanism is set forth
in Appendix G herein.

III.  RETAIL ACCESS PROGRAM

Objectives and Phase-in Target Dates


1. A capacity and energy  retail  access  program for up to 500 MW will begin no
later than  twelve  months  following  Commission  approval  of this  settlement
agreement.
       (i)  Con  Edison  will make best  efforts  to  initiate  a retail  access
            program for 10 to 15 large TOU customers within six months following
            Commission approval of this settlement agreement,  (i.e., by October
            1, 1997,  assuming approval is obtained on or before April 1, 1997),
            and to implement  the program set forth below within  twelve  months
            following Commission approval of this settlement agreement.

        (ii) A  total  of  up  to  300  MW  will  be  made  available  to  up to
             approximately  100  customers  who have real time  metering (i. e.,
             large  TOU  customers),  including  the  customers  already  in the
             program.



                                       31


        (iii)A  total  of  up  to  200  MW  will  be  made  available  to  up to
             approximately  160 groups of  non-TOU  customers  from all  service
             classifications,   totaling  about  60,000  customers   subject  to
             aggregation  rules,  to test the use of load shapes instead of real
             time metering. A group is a number of customers in a single service
             classification  with  homogenous load  characteristics  served by a
             single LSE. Low income aggregation in multi-family  buildings (five
             or more units) in low-income  neighborhoods  and  low-income  small
             home residential aggregation will be targeted.

        (iv) The number of non-TOU customers in each service classification will
             be set to bring the minimum group size to approximately 1 MW.

        (v)  Hourly energy usage for customers in the aggregated  groups will be
             derived from the monthly  energy usage  through the use of customer
             load shapes to be  determined  by Con Edison from its load research
             data subject to Staff review.

             The parties  recognize  that this  schedule is contingent on timely
             approval   of  this   settlement   agreement   and  on  the  timely
             establishment  of the  aggregation,  eligibility  and  other  rules
             applicable to retail  access.  The parties will fully  cooperate in
             this  development.  Within 90 days of approval  of this  settlement
             agreement,  the Company will file with Staff a plan  outlining  the
             manner in which the  Company  will  carry  out this  initial  phase
             (first twelve  months) of the retail access plan.  The Company will
             collaborate  with Staff and other  parties prior to filing the plan
             and develop procedures for periodic evaluation.  Otherwise eligible
             utilities  may  participate  along  with  other  LSEs in the retail
             access  program  except that, if Con Edison or its  affiliates  are
             restricted  from  participating  in retail  access  programs  being
             conducted by utilities,  participation  by such other  utilities in
             Con Edison's programs will be similarly restricted.


2. The retail access program will be expanded by 500 MW beginning with the later
of the  establishment of a fully  operational ISO or April 1, 1999. The ISO will
be "fully operational" when energy is being provided via a competitive wholesale
market  facilitated  by the ISO and  capacity  is being  provided  pursuant to a
statewide (i.e., including Con Edison service area) capacity auction or capacity
rules,  or it has been  determined  that  there is to be no  separate  statewide
capacity program. Assuming resolution of administrative and operational problems
that are likely to be  encountered  in  implementing  the first 500 MW of retail
access,  participation will be encouraged from all customer classes,  subject to
aggregation and eligibility requirements and other applicable rules.

3. In April 2000 and in each April thereafter, retail access will be expanded by
1000 MW or more.  The Company would target the phase-in of retail access to make
it  available  to all  customers  by the  earlier  of 24  months  after  a fully
operational ISO is implemented, or year-end 2002.

4. The parties recognize that even with widespread  discussion of retail access,
there has been little actual experience with retail access to date, particularly
on  a  large  scale,  and  that  industry  experience  to  date  indicates  that
approximately  one-half the customers eligible for similar



                                       32


programs would choose
to participate in such programs in the initial period that retail access is made
available.  The parties also recognize the need for customer input and a gradual
and orderly  phase-in  of retail  access to allow for the proper  resolution  of
unexpected,  but  inevitable,   operational  difficulties  and  customer-related
issues.  Accordingly,  the parties acknowledge that the retail access objectives
and phase-in dates specified  herein are targets and that  flexibility to change
the program schedule indicated herein as issues and obstacles are addressed more
slowly (or more rapidly) than anticipated is essential. The schedule, therefore,
will (with appropriate Commission oversight) be subject to adjustment (e.g., via
queuing, phasing, or similar procedures) to address these developments.

5. The parties also  acknowledge  that the  transition to a competitive  market,
which is desirable, needs to address the Company's statutory service obligation.
Specifically,  the parties  acknowledge  the  Company's  concern  that it may be
acting in a manner  inconsistent  with its statutory duty to serve if it were to
make  irrevocable  commitments  toward a competitive  capacity  market,  such as
divesting generation or shutting down generating  stations,  without recognizing
that Con Edison's  ability to carry out its service  obligation  reliably may be
threatened  by  such  commitments.  Con  Edison  will  not be  required  to make
irrevocable commitments that are inconsistent with its obligations at the time.

Retail Access Prior to A Fully Operational ISO

It is the intent of the parties that the rates charged to LSEs for energy and/or
capacity   and   the   rates   charged   to   retail   access    customers   for
transportation/delivery  service would not result in  subsidization of such LSEs
and retail  access  customers by the Company or its full service  customers  and
that stranded costs  resulting from retail access be allocated  consistent  with
this no-subsidy principle.  Subject to this principle, the method of determining
the capacity charges to LSEs and the related Generation Capacity Adjustments set
forth below will be  re-evaluated  prior to the second year of the retail access
program.

6. Energy: LSEs, including Con Edison's ESCO, providing service to retail access
customers  will have the option of purchasing  energy  directly  from  suppliers
through bilateral  arrangements (subject to operational  requirements),  or from
Con Edison at  FERC-filed  energy  tariff  rates.  These  rates,  expressed on a
cents/kWh  basis,  will be  equivalent  to the  unbundled  energy  costs  in the
corresponding PSC No. 9 tariff,  including any fuel adjustment thereto, less the
reliability-related   and  other  unavoidable  energy  costs.  As  to  bilateral
arrangements:

   -  Deliveries will be scheduled  through the NYPP and/or Con Edison and must
      be curtailable for reasons such as in-City generation requirements for the
      purpose of reliability.
   -  LSEs will be required to provide to Con Edison  with any  necessary  data
      needed to evaluate this program.
   -  LSEs will be  responsible  for  delivery to Con Edison's  franchise  area
      border.
   -  LSEs will be responsible  for delivery of sufficient  energy to cover all
      losses  in  delivery  to  customers'  premises,  with  such  loss  factors
      reflected in applicable tariffs.
   -  Con Edison  will  verify  LSEs'  deliveries  and will  provide  balancing
      services for LSEs at a charge to be filed with FERC.



                                       33


   -  LSEs serving  in-City  load should have no greater  rights (or access) to
      the available transmission capacity for energy imports into NYC than their
      pro-rata share of such  available  capacity if the location based marginal
      cost  transmission  congestion  contract  approach proposed by NYPP is not
      approved by FERC in time for its implementation herein.

7.  Capacity:  LSEs,  including Con Edison's ESCO,  providing  service to retail
access customers, will have the option of purchasing capacity from Con Edison at
FERC-filed  capacity tariff rates,  expressed on a $/kW-year basis.  Such tariff
rates  will not,  at least for RY1,  exceed the PSC No. 9  generation  component
charge and will be  established  annually based on an auction to be conducted by
the Company for the sale of  installed  capacity in excess of capacity  required
for its full service customers.  LSEs will also be able to provide capacity from
any other available source subject to the following:

 -    LSEs will be required to contract  for  capacity  equal to 118 percent of
      the coincident peak load to be supplied.
 -    For in-City  load,  LSEs will be required to contract for  capacity  from
      in-City sources equal to 80 percent of the peak load to be supplied.
 -    Capacity  obtained  from sources other than Con Edison will be subject to
      the same  reliability  requirements  to which Con Edison's  resources  are
      subject,  such  as  NYPP  rules  for  capacity   reliability/availability,
      including  installed capacity criteria,  and  disqualification of capacity
      obtained from  generators that have committed the same capacity to another
      entity.

8. Delivery  Service:  The  transportation/delivery  service rate for all retail
access  customers  will be equal to the full service rate in the  applicable PSC
No. 9 tariff (e.g.,  large commercial retail access customers will be subject to
the  rates  and  charges  in the PSC No. 9  tariff  rate  for  large  commercial
customers),  subject to the  adjustments to the energy and  generation  capacity
components  of the full service  rate  described  below.  The  transmission  and
distribution  component and customer charge component of the PSC No. 9 rate will
not be impacted.

(i)   Energy Adjustment:  The applicable PSC No. 9 energy component charge
      (on a cents/kWh basis, after adjustment to reflect total actual energy
      costs) will be credited on a monthly basis for all retail access
      customers by an amount equal to the lesser of the SC No. 11 Buy-Back
      energy rate and such applicable PSC No. 9 energy component charge.  The
      remaining portion of the energy component charge included in the
      transportation/ delivery service rate (e.g., reliability-related and
                                             ----
      other unavoidable energy costs) would be subject to adjustment for
      actual costs as required.  To the extent the energy tariff approved by
      FERC provides for the recovery of less than the full energy costs
      incurred by the Company other than the reliability-related and other
      unavoidable energy costs recovered by the Company through the
      transportation/delivery service charge, such shortfall shall be
      recovered from all retail access customers through the
      transportation/delivery service rate.



                                       34


(ii)  Generation Capacity Adjustment:  The applicable PSC No. 9 generation
      capacity component charge (on a $/kW year basis) will be credited on an
      annual basis for all retail access customers by an amount equal to the
      ratio of: (1) the actual revenues to be received by Con Edison in such
      year from sales of capacity made available at auction, if any,
      including capacity sales to LSEs serving Con Edison delivery customers,
      plus estimated identifiable capacity-related savings, if any, resulting
      to the Company directly from the purchase of capacity by LSEs from
      third parties (excluding savings associated with contract terminations
      and reductions in capacity purchases from Hydro Quebec and
      I.P.3/Polletti), divided by (2) the total amount of capacity made
      available for sale at auction to LSEs; provided, however, that the
      total credit cannot exceed the then-current-applicable PSC No. 9
      generation capacity component charge.  To the extent the capacity
      tariff rate approved by FERC is less than the filed tariff rate, any
      resulting revenue shortfalls shall be recovered from all retail access
      customers through the transportation/delivery service rate.


Retail Access After A Fully Operational ISO


       9.   Energy:  Same  options  and  requirements  as  prior  to  a  fully
operational ISO (as described above, paragraph 6), except that:

   -     LSEs will also have the option of purchasing energy directly through a
         Power Exchange.
   -     ISO  will  schedule  energy  deliveries   obtained  through  bilateral
         arrangements.
   -     ISO will provide for any in-City requirements for energy.
   -     ISO will provide  verification  of LSEs'  deliveries  and  balancing
         services.

10.   Capacity:   Same   options  and   requirements   as  prior  to  a  fully
operational   ISO  (as  described   above,   paragraph  7),  except  that  ISO
reliability rules will govern.

11.   Delivery   Service:    Same   starting   point   for   determining   the
transportation/delivery  service rate as prior to a fully  operational ISO (as
described above, paragraph 8),  except that:

         (i)The Company would bid its energy into the ISO/Power  Exchange ("PE")
            (at a price which would be expected to reflect the avoidable  (i.e.,
            marginal and other  "running")  energy costs,  at a minimum (or at a
            higher price,  up to the expected  market clearing price for energy,
            consistent  with the  market  structure  that  develops).  Under the
            Energy Adjustment,  the applicable PSC No. 9 energy component charge
            (after  adjustment  to reflect  total actual  energy costs) would be
            credited for all retail  access  customers by an amount equal to the
            lesser of the market value of energy and such  applicable  PSC No. 9
            energy  component  charge.  Any  remaining  portion  of  the  energy
            component  charge  included in the  transportation/delivery  service
            rate (i.e.,  unavoidable  energy  costs not  reflected in



                                       35


            the market
            value of energy) would be subject to adjustment  for actual costs as
            required.

         (ii) To the extent practical and prudent,  the Company would bid all of
            its  capacity  into the ISO/PE at a price which would be expected to
            reflect  the "to go" (or  avoidable)  costs  (or at a higher  price,
            provided  that such  price  does not exceed  total  embedded  costs,
            including unrecovered energy costs, until market power concerns have
            been  addressed).  Under the  Generation  Capacity  Adjustment,  the
            applicable PSC No. 9 generation  capacity  component charge would be
            credited for all retail access customers by the lesser of the market
            value of capacity and such applicable PSC No. 9 generation  capacity
            component charge.

         (iii) To the extent that the in-City and  Westchester  market value for
            capacity varies, the Company will consider reflecting such variation
            in its respective charges to in-City and Westchester customers.




Disposition of Petitions

      In light of the retail  access plan set forth  herein,  the retail  access
pilot petitions referred to this proceeding in the Commission's Order Concerning
Retail  Access  Proposals  in Case  94-E-0385  (issued  February  25,  1997) are
incorporated solely to the extent consistent with this settlement  agreement and
denied  in all other  respects.  The  petitioners  will not be  foreclosed  from
participating  in the retail access  program set forth herein for which they are
otherwise eligible.

IV.   DIVESTITURE

      Consistent with the objective of developing a fully  competitive  electric
market,  the  Company  commits  to divest  at least 50  percent  of its  in-City
electric generating  fossil-fueled MW capacity (i.e., the in-city fossil plants,
either in service or on reserve  shutdown  owned by Con Edison as of the date of
this settlement agreement, net of re-ratings or retirements that occur after the
date of this settlement  agreement) by year-end 2002. The Company will develop a
plan with the  objective  of divesting  and  transferring  all plants,  with the
exception of Indian Point No. 2 and its associated gas turbines,  to unregulated
entities,  including  third parties and  affiliates.  This plan will be designed
with the  objective  of  developing  a fully  competitive  electric  market  and
maximizing the sales proceeds of divestiture.

      1.    Requirements for Divestiture


      The parties agree that the divestiture  program  outlined herein will be a
major step toward the  development  of a  competitive,  deregulated  electricity
market. The Company will, therefore,  implement its divestiture commitment.  The
only  exceptions  would  be  (i) if the  Commission  found  that  the  level  of
divestiture  should be delayed or reduced (for example,  to address factors such
as



                                       36


the need to maximize  the sales  price or avoid a "fire  sale" of assets,  to
address  unforeseen  legislative,   regulatory,   economic,  business  or  other
developments,  or a force majeure,  or to address the electric system integrity)
or (ii) pending  issuance of a finding by the  Commission,  upon petition by the
Company to which  parties  will be offered  opportunity  to  comment,  that such
divestiture   commitment  by  the  Company  is  consistent  with  the  Company's
then-existing obligation to serve the load related to customers whose loads (and
associated  locational  and reserve  margin  requirements)  exceed the Company's
remaining  generation  and that the  extent  of the  Commission's  then-existing
regulation  of  electricity  prices is not  inconsistent  with the  objective of
maximizing the sales price of assets to be divested.

      2.     Divestiture Parameters and Methodology


      The  divestiture  of plants to third parties and the transfer of plants to
the Company's unregulated  subsidiary will be carried out through a process that
will result in fair and reasonable  treatment of all parties,  including Company
investors and customers. This process will be fully developed in the divestiture
plan.

       Per Section II.13.vi,  after tax gains or losses will reflect the netting
out of divestiture  costs,  i.e., the costs of developing and  implementing  the
plan,  including  the  incremental  financial,  environmental,  transaction  and
employee  costs  associated  with the plan, and the  divestiture  carried out to
implement the plan, and any tax implications thereof.  Employee costs will cover
divestiture-related  costs,  if any,  associated  with plant and  direct-support
employees.  The use of cash  proceeds from the sale of any plants will be at the
discretion of the Company subject to the provisions of Section V.8 (iii) of this
settlement agreement. Any after-tax gains or losses made on the transfer or sale
of divested assets will be reflected in the  determination  of stranded costs to
be collected  after RY5 as  prescribed  in Section  II.13-15 of this  settlement
agreement.

       The  divestiture  plan will identify the units to be divested  consistent
with the objective of developing a  competitive  electric  market in the service
area without the need for continuing regulation.  This includes the objective of
addressing  market  power  issues in the in-city area  including  the  "sub-load
pockets." Resolution of market power issues will not include mitigation measures
such as price  controls,  revenue  caps or other  means  which  could  limit the
revenues of the future owner of the generating  unit.  Con Edison's  affiliates,
consistent  with  the  objective  of  achieving  workable  competition,  will be
included among the  transferees  in the Company's  divestiture  plan,  and, at a
minimum,  Con Edison's  affiliate's  ownership of generation  within the in-City
load pocket  would not be required to be at a level below the amount that may be
owned by any other single seller into the market.


      3.    Divestiture Plan Procedures

        The Company will submit its  divestiture  plan to the Commission  within
one year of the  Commission  order  approving  this  settlement  agreement.  The
Company will keep Staff and the parties  informed  about the  development of the
plan and submit to Staff for its  comment a draft scope of work for the plan and
the Company will brief Staff on the progress of the plan during its



                                       37


development.
These steps are intended to be informal and informational with minimum intrusion
on the plan's  development.  No rights of formal discovery or similar procedural
requirements  are intended to be provided  although  the Company will  cooperate
with  reasonable  inquiries  during the plan's  development  and  participate in
collaborative  efforts  requested by Staff.  The Company will submit the plan to
the Commission  following its completion.  If the Company  requests an exception
from  its  divestiture  commitment,  the  Commission  will  rule on the  request
expeditiously.  If the Commission  otherwise  comments on the plan or recommends
that to address market power or other concerns the plan should be modified,  the
Commission  will  either  initiate a  proceeding  to consider  such  comments or
recommendations   or  request  Con  Edison  to  respond  to  such   comments  or
recommendations.  Thereafter,  the Commission will approve the plan or modify it
in a manner consistent with the terms and conditions  prescribed by this Section
IV. The Company will not challenge the Commission's  authority to implement this
subparagraph.   Nothing  in  this   subparagraph   precludes  the  Company  from
petitioning the Commission  separately at any time for authorization to transfer
generation or other plant pursuant to Section 70 of the Public Service Law.


      4.    Post-Rate Plan Period


      Any residual  unrecovered  costs for fossil  generation  will be recovered
through  charges  established as prescribed in Section II.15 of this  settlement
agreement.

V.    CORPORATE STRUCTURE

1.    Formation of Holding Company


      (i)   The Company is permitted to reorganize into a holding company
            form through the mechanism of a binding share exchange, after
            which Con Edison (referred to in this Section as "the RegCo")
            will be a subsidiary of the Holding Company ("the HoldCo").*   In
            addition to Commission and shareholder approval, the approval of
            the Federal Energy Regulatory Commission ("FERC") and the consent
            of the Nuclear Regulatory Commission ("NRC") will be required to
            form the holding company structure.

      (ii)  Upon the formation of the HoldCo, Con Edison's existing
            unregulated subsidiaries, Promark Energy, Inc. (established
            pursuant to the Commission's order dated May 13, 1993 in Case
            92-G-0841, as amended by order dated January 7, 1994 in Case
            92-G-0841, order dated October 12, 1994 in Case 93-G-0996, and
            order dated November 16, 1994 in Case 94-G-0294) (the "ESCO"),
            and Gramercy Development, Inc., (established pursuant to the
            Commission's order dated July 


* In the other  Sections of this  settlement  agreement,  "Con  Edison" and "the
Company"  refer to the  corporation  existing  as of the date of the  settlement
agreement and, where the settlement agreement applies to periods after formation
of Holdco, to the RegCo.


                                       38


            12, 1996 in Case 95-M-0418), will
            be transferred to and become direct or indirect subsidiaries of
            the HoldCo.

      (iii) The HoldCo may form other subsidiaries from time to time,  including
            an Energy Supply  Company.  To the extent that the RegCo's  existing
            fossil-fueled  generating  stations are retained  within the holding
            company  structure,  they will be transferred  during the transition
            period  from the RegCo to the Energy  Supply  Company in  accordance
            with the RegCo's  divestiture  plan,  where they will compete in the
            unregulated   generation   market.   NUG  contracts   that  are  not
            securitized would remain with the RegCo.

      (iv)  An initial organization chart is attached as Appendix H.  The
            subsidiaries other than the RegCo are referred to collectively as
            "the unregulated subsidiaries" or "unregulated affiliates."

2.    Functional Unbundling

      (i)   Within the RegCo, the operations of its generating system, including
            fuel and power  purchases,  will be functionally  unbundled from its
            transmission   and   distribution   systems  in  a  "business  unit"
            structure.

      (ii)  Common services (including administrative, accounting, legal,
            purchasing, etc.) will continue to be provided within the RegCo
            to all of the RegCo business units.

      (iii) The business unit  structure  contemplates  realignment  of existing
            organizations  along  functional  lines.  The  latest  step  in  the
            realignment  was  effective  on  December  1,  1996.  The  wholesale
            electricity  purchasing  function for franchise  area  customers was
            aligned with the purchase of fuel for fossil  generation  within the
            generation  organization.  The  transmission  pricing  and  planning
            functions  were  aligned  within  the   transmission   organization,
            increasing  the  separation  of  the  generation  and   transmission
            functions.  Future changes include  realignment of the  transmission
            organization  with the distribution  organization  within the RegCo.
            Also the maintenance and construction organization will be realigned
            to  provide   functional   separation   between   transmission   and
            generation.


3.    The RegCo

      (i)   At the inception of the holding  company  structure,  the RegCo will
            continue  to own  all  generation,  transmission,  electric  and gas
            distribution and steam systems.

      (ii)  To the extent the RegCo continues to own generation assets or NUG
            contracts, it would be permitted to make wholesale electric
            energy sales outside its service territory, retail and wholesale
            electric energy sales within its service territory, and retail
            electric energy sales outside its service territory until the
            RegCo has an unregulated affiliate with all necessary approvals
            to make retail sales outside the


                                       39


            RegCo's service territory.  The
            RegCo will be permitted to provide service for the remaining
            terms of any contracts for retail sales outside the service
            territory in effect on the date the RegCo's authority to make
            additional sales otherwise terminates or assign its rights and
            obligations, under one or more of such contracts to its
            affiliates if permitted by the contract(s).

      (iii) The RegCo may also  continue  to  provide  certain  services,  i.e.,
            advisory  services and maintenance and repair shop services provided
            by the  Van  Nest  maintenance  facility  (until  transferred  to an
            unregulated  subsidiary),   both  within  and  outside  the  service
            territory.  After RY5,  Van Nest,  if still owned by RegCo,  may not
            provide any service that the RegCo will stop  providing  pursuant to
            Section V.3(iv).

      (iv)  Through RY5, to the extent that the RegCo continues to have sales
            customers, the RegCo would be permitted to provide the full range
            of energy products and services to those sales customers,
            including "behind the meter" products and services, except for
            any behind the meter service that the Commission determines
            generically that the utilities should not provide, in which case
            the RegCo would terminate any such existing service(s) by the
            later of the date provided in the generic order or three (3)
            years from the effective date of the order approving this
            settlement.  RegCo may, however, elect to provide only basic
            commodity service and advise customers to seek energy-related
            services from competitive energy service companies that offer
            such products and services.  After RY5, the RegCo will, unless
            otherwise authorized by the Commission, not provide any
            separately offered and separately priced behind-the-meter gas or
            electric services that are available from unregulated providers,
            except:  (a) those services that were part of its historical
            bundled service  and (b) those reasonably necessary to provide
            transmission and distribution service (e.g., services necessary
                                                   ----
            to ensure the safety and adequacy of service; incidental
            environmental work).

4.    Affiliate Relations - In General

      (i)   The RegCo and the HoldCo's  other  subsidiaries  will be operated as
            separate entities.  No unregulated  affiliate will be located in the
            same building as the RegCo beyond 180 days after its formation.  The
            RegCo and the HoldCo may occupy the same building.

      (ii)  Any transfer of assets or the provision of goods or services,  other
            than  tariffed  services and corporate  services  (such as corporate
            governance,  administrative,  legal and accounting services), by the
            RegCo to an unregulated  subsidiary or an unregulated  subsidiary to
            the RegCo,  will be pursuant to written contracts that will be filed
            with the PSC.

      (iii) Cost  allocation  guidelines  are  attached  as  Appendix  I.  These
            guidelines  will be amended and/or  supplemented,  if necessary,  to
            reflect  affiliate  transactions  not


                                       40


            contemplated  by the  initial
            guidelines  set forth in Appendix I. The Company  will file with the
            Director of the Office of Accounting  and Finance of the  Department
            of Public Service all  amendments and  supplements to the guidelines
            thirty days prior to making such change(s).

5.    Transfer of Assets

      (i)   Transfers  of  assets  from  the  RegCo to an  affiliate  or from an
            affiliate to the RegCo will not require  prior  Commission  approval
            except for the transfer of generating stations and other assets from
            the RegCo whose transfer requires Commission approval under PSL Sec.
            70.

      (ii)  For all assets other than generating stations (whose value will
            be determined in the section 70 proceeding),  transfers of assets
            from the RegCo to an affiliate shall be at the higher of net book
            value or fair market value and transfers of assets from an
            affiliate to the RegCo shall be on a basis not to exceed fair
            market value except that the RegCo may, as part of its
            reorganization, transfer to the HoldCo (at no charge) title to
            office furniture, equipment and other assets having an aggregate
            net book value not to exceed $5 million.

      (iii) Fair market value shall be determined  in  accordance  with the cost
            allocation  guidelines  (Appendix  I).  For  example,  the RegCo may
            transfer to an affiliate any computer software system that the RegCo
            is  authorized  to transfer,  without  data, at a price at which the
            RegCo would sell such software to an unaffiliated third party.

      (iv)  In general,  the transfer of  generating  assets will be  consistent
            with the divestiture plan.


6.    Personnel

      (i)   The RegCo and the unregulated subsidiaries will have separate
            operating employees.

      (ii)  Non-administrative  operating  officers  of the  RegCo  will  not be
            operating officers of any of the unregulated subsidiaries.

      (iii) Officers of the HoldCo may be officers of the RegCo.

      (iv)  Employees may be  transferred  between the RegCo and an  unregulated
            subsidiary upon mutual agreement.  Transferred  employees may not be
            reemployed  by the RegCo for a minimum of one year from the transfer
            date.  Employees returning to the RegCo may not be transferred to an
            unregulated  subsidiary  for a minimum of 18 months from the date of
            return.



                                       41


      (v)   For employees transferred from the RegCo to an unregulated
            subsidiary, the unregulated subsidiary shall compensate the RegCo
            with an amount equal to 25 percent of the employee's prior year's
            annual salary on a one-time basis, except that there shall be no
            compensation (i) for employees transferred to an unregulated
            subsidiary not later than six months from the date the HoldCo
            becomes the parent of the RegCo or the unregulated subsidiary to
            which the employee is transferred is formed, whichever is later;
            (ii) for the transfer of employees covered by a collective
            bargaining agreement; or (iii) where the employee's transfer is
            attributable to the transfer or reduction of a RegCo function or
            major asset (e.g., a generating station).
                         ---  

      (vi)  The  foregoing  provisions  in no way  restrict any  affiliate  from
            loaning employees to RegCo to respond to an emergency that threatens
            the safety or reliability of service to consumers.

      (vii) The  compensation  of  RegCo  employees  may  not  be  tied  to  the
            performance  of  any  of  the  unregulated  subsidiaries,  provided,
            however,  that  stock of the  HoldCo  may be used as an  element  of
            compensation  and the  compensation of common officers of the HoldCo
            and RegCo may be based upon the operations of the HoldCo and RegCo.

      (viii)      The employees of HoldCo, RegCo and the unregulated
            subsidiaries may participate in common pension and benefit plans.


       7.   Provision of Services and Goods

      (i)   The  RegCo  may  provide  corporate   services  (such  as  corporate
            governance, administrative, legal and accounting) for the HoldCo and
            the HoldCo's  unregulated  subsidiaries  may purchase  such services
            from the RegCo.  The  services  would be provided on a  fully-loaded
            cost basis.

      (ii)  The RegCo may provide other services to an unregulated affiliate,
            except that the RegCo may not use any of its marketing or sales
            employees to provide services to an unregulated affiliate for
            business within the RegCo's service territory.  The unregulated
            affiliate shall compensate the RegCo for the services of
            employees performing such services at the higher of the
            employees' fully-loaded cost plus 10 percent or the price that
            the RegCo charged a third party for such employees' services.

      (iii) The  unregulated  affiliates may provide  services to the HoldCo and
            the RegCo.  Any  management,  construction,  engineering  or similar
            contract between the RegCo and an affiliate and any contract for the
            purchase by the RegCo from an  affiliate  of electric  energy or gas
            shall be  governed  by PSL ss.110,  subject to any  applicable  FERC
            requirements.  All other goods and services  will be provided to


                                       42


            the
            RegCo at a price that shall not be greater  than fair market  value,
            determined  in  accordance  with  the  cost  allocation   guidelines
            (Appendix I).

      (iv)  The RegCo, the HoldCo, and the unregulated affiliates may be covered
            by common  property/casualty  and other business insurance policies.
            The costs of such policies shall be allocated  among the RegCo,  the
            HoldCo and the unregulated affiliates in an equitable manner.


8.    Maintaining Financial Integrity

      (i)   The debt of RegCo  would be raised  directly  by the RegCo and would
            not be derived from the HoldCo.

      (ii)  Without the prior  permission of the Commission,  the RegCo will not
            (i) make loans to the HoldCo or any of the unregulated subsidiaries,
            (ii)  guarantee the  obligations  of either the HoldCo or any of the
            unregulated  subsidiaries;  (iii)  pledge its assets as security for
            the indebtedness of the HoldCo or any affiliate.

      (iii) The RegCo  will not pay out more than 100% of income  available  for
            dividends  calculated on a two-year rolling average basis.  Excluded
            from the  calculation  of "income  available for  dividends" for the
            purposes  of this  provision  will be  non-cash  charges  to  income
            resulting  from  accounting  changes or charges to income  resulting
            from significant  unanticipated  events.  The foregoing  restriction
            will also not apply to dividends necessary to transfer to the HoldCo
            revenues from major transactions,  such as asset sales,  divestiture
            or  securitization  or to  dividends  reducing  the  RegCo's  equity
            capital ratio to a level  appropriate to the RegCo's  business risk.
            Senior  management  personnel  of the RegCo will discuss with senior
            Commission Staff personnel, on a confidential basis, the possibility
            of the  payment  of a  dividend  that  would  exceed  the  foregoing
            restriction  at least 10 business  days before  declaration  of such
            dividend.

      (iv)  The RegCo will be  required to certify  annually  to the  Commission
            that the RegCo has  retained or otherwise  has access to  sufficient
            capital to maintain and upgrade its plant, works and system in order
            to continue the provision of safe and reliable service.

      (v)   Senior  management  personnel  of the RegCo and the HoldCo will meet
            annually with senior  Commission  Staff  personnel to discuss,  on a
            confidential  basis,  the  RegCo's  and  the  HoldCo's   activities,
            including   plans  related  to  capital   attraction  and  financial
            performance.




                                       43


9.    Standards of Competitive Conduct


      The following  standards of  competitive  conduct shall govern the RegCo's
relationship with any energy supply and energy service affiliates:


      (i)   There are no restrictions on affiliates using the same name,
            trade names, trademarks, service name, service mark or a
            derivative of a name, of the HoldCo or the RegCo, or in
            identifying itself as being affiliated with the HoldCo or the
            RegCo.  However, the RegCo will not provide sales leads for
            customers in its service territory to any affiliate, including
            the ESCO, and will refrain from giving any appearance that the
            RegCo speaks on behalf of an affiliate or that an affiliate
            speaks on behalf of the RegCo.  If a customer requests
            information about securing any service or product offered within
            the service territory by an affiliate, the RegCo may provide a
            list of all companies known to RegCo operating in the service
            territory who provide the service or product, which may include
            an affiliate, but the RegCo will not promote its affiliate.

      (ii)  The RegCo will not  represent to any  customer,  supplier,  or third
            party that an advantage may accrue to such  customer,  supplier,  or
            third party in the use of the  RegCo's  services as a result of that
            customer,  supplier or third party dealing with any affiliate.  This
            standard   does  not  prohibit  two  or  more  of  the   unregulated
            subsidiaries from lawfully packaging their services.

      (iii) All  similarly   situated   customers,   including  energy  services
            companies  and  customers  of  energy  service  companies,   whether
            affiliated or unaffiliated,  will pay the same rates for the RegCo's
            utility  services and the RegCo shall apply any tariff  provision in
            the same manner if there is  discretion  in the  application  of the
            provision.

      (iv)  Transactions  subject to FERC's  jurisdiction  will be  governed  by
            FERC's orders or standards as applicable.

      (v)   Release of proprietary customer information relating to customers
            within the RegCo's service territory shall be subject to prior
            authorization by the customer and subject to the customer's
            direction regarding the person(s) to whom the information may be
            released.  If a customer authorizes the release of information to
            a RegCo affiliate and one or more of the affiliate's competitors,
            the RegCo shall make that information available to the affiliate
            and such competitors on an equal basis.

      (vi)  The  RegCo  will not  disclose  to its  affiliate  any  customer  or
            marketer  information  relative  to its  service  territory  that it
            receives from a marketer,  customer or potential customer,  which is
            not available from sources other than the RegCo,


                                       44


            unless it discloses
            such information to its affiliate's competitors contemporaneously on
            an equal basis to the extent practicable.

      (vii) If any  competitor or customer of the RegCo  believes that the RegCo
            has violated the standards of conduct established in this section of
            the agreement,  such  competitor or customer may file a complaint in
            writing with the RegCo.  The RegCo will respond to the  complaint in
            writing  within  twenty  (20)  business  days  after  receipt of the
            complaint.  Within  fifteen (15)  business  days after the filing of
            such response,  the RegCo and the complaining  party will meet in an
            attempt  to  resolve  the  matter  informally.  If the RegCo and the
            complaining party are not able to resolve the matter informally, the
            matter will be referred promptly to the Commission for disposition.

      (viii)The Commission may impose on the RegCo  remedial  action  (including
            redress or penalties,  as applicable) for the RegCo's  violations of
            the standards of competitive  conduct.  If the Commission finds that
            the RegCo has engaged in a consistent pattern of material violations
            of the standards of  competitive  conduct  during the course of this
            Agreement,  it  shall  provide  the  RegCo  notice  of a  reasonable
            opportunity  to remedy  such  conduct.  If the RegCo fails to remedy
            such conduct within a reasonable period after receiving such notice,
            the Commission  may take remedial  action with respect to the HoldCo
            to prevent  the RegCo from  further  violating  the  standard(s)  at
            issue.  Such  remedial  action may include  directing  the HoldCo to
            divest the unregulated subsidiary,  or some portion of the assets of
            the  unregulated  subsidiary,  that is the  subject  of the  RegCo's
            consistent pattern of material  violations but exclude directing the
            HoldCo  to  divest  the  RegCo  or  imposing  a  service   territory
            restriction on the unregulated subsidiary. If the HoldCo is directed
            to divest an unregulated subsidiary, it may not thereafter,  without
            prior Commission  approval,  use a new or existing subsidiary of the
            HoldCo to conduct  within its service  territory  the same  business
            activities as the divested subsidiary (e.g.,  energy services).  The
            RegCo and the Holdco may exercise any or all of their administrative
            and judicial  rights to seek a reversal or  modification of remedial
            actions ordered by the Commission and may seek to obtain any and all
            legal and/or equitable relief from such remedial actions,  including
            but not limited to injunctive  relief. Con Edison will not challenge
            the Commission's authority to implement this subparagraph.

10.   Access to Books and Records and Reports

      (i)   Staff  will  have  access,  on  reasonable  notice  and  subject  to
            appropriate resolution of confidentiality and privilege concerns, to
            the books and records of the HoldCo and the HoldCo's  majority-owned
            subsidiaries.

            Staff  will  have  access,  on  reasonable  notice  and  subject  to
            appropriate resolution of confidentiality and privilege concerns, to
            the books and records of all other HoldCo subsidiaries to the extent
            necessary to audit and monitor any transactions



                                       45


            which have occurred
            between  the RegCo and such  subsidiaries,  to the extent the HoldCo
            has access to such books and records.

      (ii)  The RegCo will  supplement  the  information  that the  Commission's
            regulations  require  it  to  report  annually  with  the  following
            information:  Transfers  of  assets to and from an  affiliate,  cost
            allocations  relative to affiliate  transactions,  identification of
            RegCo  employees  transferred  to an  affiliate,  and a  listing  of
            affiliate employees participating in common benefit plans.

      (iii) The  HoldCo  will  provide  a  list  on a  quarterly  basis  to  the
            Commission  of all filings  made with the  Securities  and  Exchange
            Commission by the HoldCo and any subsidiary of the HoldCo, including
            the RegCo.

      (iv)  A senior officer of the HoldCo and the RegCo will each designate
            a company employee, as well as an alternate to act in the absence
            of such designee, to act as liaison between the HoldCo, the RegCo
            and Staff ("Company Liaisons").  The Company Liaisons will be
            responsible for ensuring adherence to the established procedures
            and production of information for Staff, and will be authorized
            to provide Staff access to any requested information to be
            provided in accordance with this Agreement.

      (v)   Access to books and records  shall be subject to claims of privilege
            and confidentiality concerns as set forth in Appendix J hereto.

11.   Independent Auditor

      (i)   The Commission may, during the term of this agreement,  require that
            an  independent  auditor  review the  compliance of the HoldCo,  the
            RegCo  and the  unregulated  subsidiaries  with  the  terms  of this
            agreement.   The  identity  of  the  independent   auditor  will  be
            determined  by the  Commission.  The cost of such  audit and  review
            shall be reasonable under the circumstances and shall be recorded by
            RegCo as a deferred debit and be recoverable from ratepayers.

12.  Royalty

      (i)   The rate plan covers all royalties that otherwise  would be credited
            to RegCo's customers, at any time, including after the expiration of
            the agreement.

13.   Miscellaneous

      (i)   If Con Edison has not received shareholder or other regulatory
            approvals necessary to form HoldCo prior to issuance of the order
            approving the settlement, Con Edison is permitted to use up to 5%
            of its consolidated capital to fund unregulated subsidiaries that
            currently exist or that it may form and the relationships among
            and restrictions on affiliates shall be governed by this
            settlement agreement.  Accordingly, upon the date of the
            Commission's order


                                       46


            approving this settlement, the existing
            limitations on the services that ProMark may provide are
            eliminated.  ProMark, which will likely become the ESCO, will be
            permitted to offer all the retail and wholesale energy services
            and related services and products, both within and outside Con
            Edison's service territory, that other unregulated energy service
            companies are permitted to offer.  Affiliate transactions between
            Con Edison and its subsidiaries, including the transfer of assets
            and employees and provision of goods and services, shall be
            governed in accordance with the terms of this agreement. Con
            Edison may, in its sole discretion, continue to seek the
            necessary approvals to reorganize into a holding company
            structure.

      (ii)  Upon the date of the  Commission's  order  approving this settlement
            agreement,  Con Edison's  relationships with its existing and future
            affiliates  will  be  governed   prospectively  by  this  settlement
            agreement.  Accordingly,  the following  Commission  orders will not
            apply to Con Edison:

            -Order Approving  Use Of Up To $50  Million  To  Invest In
             Unregulated Subsidiaries, issued July 12, 1996, in Case No.
             95-M-0418;
            -Order Approving Use Of Utility Revenue To Establish A Gas
             Marketing Subsidiary, issued May 13, 1993, and Order Denying
             Petition For Reconsideration, issued January 7, 1994, in Case
             No. 92-G-0841; and
           - order  approving  use up to an  additional  $26,000,000  of utility
             revenue to invest in Con Edison  Gas  Marketing,  Inc., filed in
             92-G-0841, issued November 16, 1994, in Case No. 94-G-0294.

            Similarly,   Section  1.A.v  of  the  June  7,  1994  Agreement  and
            Settlement  Concerning Gas Rates of Consolidated Edison of New York,
            Inc.  in Case  93-G-0996  and  Section  L.7 of the  October 24, 1996
            Settlement  Agreement in Case  96-G-0548,  which address royalty and
            other affiliate issues, will have no prospective
            effect.

      (iii) The standards of conduct set forth in this  Agreement  will apply in
            lieu of any existing generic standards of conduct (e.g., the interim
            gas  standards  established  in Case  93-G-0932)  and in lieu of any
            future  generic  standards of conduct  established by the Commission
            through RY5 and will continue to apply after RY5 given the Company's
            need  for  stability  in  rules  governing  the  HoldCo   structure.
            Thereafter,  before  the  Commission  makes  any  changes  to  these
            standards,  it will consider the Company's  specific  circumstances,
            including its performance under the existing standards.


VI.   RESTRUCTURING-RELATED ACTIONS


 1.   Con Edison has an issue of Cumulative Preference Stock 6% Convertible
      Series B.  At



                                       47


      December 31, 1996, 46,305 shares remained outstanding.
      Each share of stock is convertible at the option of the holder into 13
      shares of common stock and is also redeemable by the Company at a
      redemption price of $100.  Following the formation of HoldCo, all of
      Con Edison's common stock will be held by HoldCo.  Con Edison's
      preferred stock will remain outstanding stock of Con Edison.  To avoid
      having an issue of preferred stock that would be convertible into a
      minority common stock interest of Con Edison, Con Edison is authorized,
      subject to Commission approval of this settlement agreement, to call
      for redemption the remaining shares of the 6% Convertible Series B
      Cumulative Preference Stock.

 2.   The transition to competition envisioned by the Commission's May 20,
      1996 order and this settlement agreement could have an impact on
      Company employees other than as a result of divestiture measures
      addressed in Section IV of this settlement agreement.  To address this
      prospect, incremental retraining costs and severance payment,
      outplacement and related costs, if any, incurred in the RY1 through RY5
      period and not covered in Section IV will be deferred and reflected in
      the Statement of Case 96-E-0897 Adjustments per Section II.11 herein.
      The cost of any pension modification intended to promote early
      retirement will be amortized to pension expense over a period
      approximating the remaining service period for the Company's employees,
      and unamortized costs will be reflected in rates after RY5.  The
      programs covered by this subparagraph will be subject to review to
      assure that they are related to the transition to competition and
      reasonable compared to the cost and scope of similar programs
      implemented by other companies.

      The parties  recognize  that the  Company  and Local 1-2 Utility  Workers'
      Union  of  America,  AFL-CIO,  are  subject  to  a  collective  bargaining
      agreement  effective  through  June 24, 2000,  which  includes a provision
      entitled  "Successor  Clause and Notice,"  but nothing in this  settlement
      adds to,  subtracts  from or  otherwise  modifies  any  rights,  duties or
      obligations set forth in said collective bargaining agreement.

 3.   Nothing  in  this  settlement   agreement  is  intended  to  preclude  the
      Commission, at the time it exercises its authority over such actions under
      Sections  70  and  108 of the  Public  Service  Law,  from  allocating  to
      ratepayers  appropriate  savings  resulting from a merger that takes place
      between  Con Edison and  another  electric or gas utility or a purchase of
      another gas or electric  utility by Con Edison or a purchase of Con Edison
      by any other utility.




VII.  CUSTOMER EDUCATION PROGRAM

      Con Edison will continue to develop and  implement  programs and materials
that will aid its  customers  in  understanding  the changes in the  electricity
market that are coming and the nature of the services that  customers can expect
to receive  from the  Company  in the  future.  Con  Edison's  overall  goals in
conducting these programs are to enable customers, particularly small customers,
to make informed choices about utility service while  understanding their rights
and



                                       48


responsibilities  as a utility  customer and to get customer input into the
design of the  retail  access  program.  For retail  access and energy  services
choices  in the  competitive  energy  market,  the  Company's  efforts  would be
complemented by those of the  participating  providers of competitive  services,
who  can be  expected  to  provide  prospective  retail  access  customers  with
information  about the energy  choices  becoming  available  to  consumers.  The
program will also attempt to reach out to customers  eligible for the industrial
employment growth program.

      Con Edison will seek to achieve its goals  through  outreach and education
activities.  The outreach and  education  program will utilize the core outreach
and  education  tools  currently  in use:  communication  through  the  Customer
Handbook provided to new residential  customers;  customer information packages;
"Customer  News,"  which is  mailed  four or five  times  each year to all three
million  customers;   and  in-person  presentations  to  groups,  including  the
Company's  Advisory Councils,  social services  providers' groups, and different
segments of the Company's  customer base. The Company will  supplement this core
program with a message on the Company's  voice response unit telephone  service,
which will be  available  to more than  600,000  callers who contact the Company
each month.

      The  Company  will  provide  annually  to  Staff  on June 30 of each  year
beginning 1998 a summary of its customer education efforts. This submission will
include an assessment of the progress made by these efforts.


VIII. MISCELLANEOUS

      1.    Provisions Not Separable:  Effect of Commission Modifications


      The parties have  negotiated and accepted this agreement in toto with each
provision in consideration  for, in support of, and dependent on the others.  If
the  Commission  does  not  approve  this  agreement  in its  entirety,  without
modification,  any  signatory may withdraw its  acceptance of this  agreement by
serving  written  notice on the other  parties,  and shall be free to pursue its
position in this proceeding without prejudice.

      If the Commission  approves this settlement  agreement or modifies it in a
manner  acceptable  to the  parties,  the parties  intend  that this  settlement
thereafter  be  implemented  in  accordance   with  its  terms.  If  a  material
modification  is  thereafter  authorized or required by the  Commission  that is
unacceptable to any party to this  settlement  agreement  adversely  affected by
such  modification,  then,  in addition to any other  remedies a party may have,
such party may withdraw from the  agreement and will not be bound  thereafter to
its provisions.

      2.    Provisions Not Precedent


      The terms and provisions of this agreement apply solely to and are binding
only in the context of the purposes and results of this  agreement.  None of the
terms and provisions of this agreement and none of the positions taken herein by
any party may be  referred  to,  cited or relied



                                       49


upon by any other party in any
fashion as precedent in any other proceeding before this Commission or any other
regulatory  agency or  before  any court of law  except  in  furtherance  of the
purposes and results of this agreement.

                              Staff of the Department
                                of Public Service

                                    Richard King

                           Consolidated Edison Company
                                of New York, Inc.

                                    John D. McMahon